Jul 302017
 
 July 30, 2017  Posted by at 8:33 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle July 30 2017


Gertrude Käsebier Young negro woman, Newport, Rhode Island 1902

 

Wall Street Isn’t Ready For A 1,100-Point Tumble In The Dow Industrials (MW)
Dangerous Game: Shorting the VIX (Barron’s)
Zombie Companies Littering Europe May Tie the ECB’s Hands for Years (BBG)
Markets Relax Merrily on a Powerful Time Bomb (WS)
US Economic Resilience Is An Exaggeration (DDMB)
The Quest To Prove Collusion Is Crumbling (WaPo)
What’s The Matter With Democrats – Thomas Frank (IBT)
Decades From Now, They’ll Say He Had “The Tweets” (Jim Kunstler)
Leasehold Tycoon Whose Firms Control 40,000 UK Homes (G.)
Companies Abandon Nearly One Million Hectares of Alberta Oilsands (CP)
EU Accused Of ‘Wilfully Letting Refugees Drown’ In The Mediterranean (Ind.)

 

 

And it never will be.

Wall Street Isn’t Ready For A 1,100-Point Tumble In The Dow Industrials (MW)

The U.S. stock market has been on such a parabolic march higher that Wall Street investors may have forgotten what a typical, sharp downturn feels like. Indeed, much has been made about the lack of volatility. The CBOE Volatility Index otherwise known as the “fear gauge,” had been flirting with its lowest close on record, implying that market expectations for a sharp, sudden fall are near rock bottom, as the Dow Jones Industrial Average, S&P 500 and the Nasdaq Composite Index scale new heights. (The Dow notched a fresh record on Friday to end the week 1.2% higher.) The recent level of complacency permeating the market has pundits talking about the lack of 5% falls in the market—an occurrence that isn’t unusual in a normal market environment. However, a 5% tumble, while normal, isn’t that common either. It has occurred at least 75 times over the course of the blue-chip index’s, according to WSJ Market Data Group, using data going back to 1901.

The Dow, however, hasn’t experienced a 5% decline since 2011, and before that a 5% drop hadn’t happened since 2008, when there were 9 such drops: At this point, with the Dow just 200 points shy of 22,000, a 5% selloff would equate to a 1,100-point, one-day slide in the gauge. Is the market ready for that sort of sudden jolt lower, given the optics of a quadruple-digit downturn and how it might rattle investment psyche? Art Hogan, chief market strategist at Wunderlich Securities, doesn’t think so. “I would say no because we’re out of practice. Your usual standard garden-variety volatility just hasn’t been around, and we haven’t seen it for 12 months,” Hogan told MarketWatch. “Quiet markets have been the norm and not the exception and I think a major pullback is going to feel a whole lot larger for lack of experience and the numbers are larger,” he said.

Even a 2.5% drop in the Dow, adding up a 550-point decline, could be unsettling, market participants said. Those sorts of tumbles are far more frequent, with 564 such moves of that magnitude occurring in the Dow since 1901. The most recent slump of at least 2.5% was on June 24, 2016, when the Dow tumbled about 610 points, or 3.4%, a day after U.K. citizens voted to end the country’s membership in the EU. There were 3 falls for the Dow of at least 2.5% in 2015. Hogan said it is even hard to imagine what the landscape of the market would like in the face of a plunge of the same magnitude of the 1987 crash, when the Dow lost 22.6% of its value, or 508 points, in a single session. “That’s why it is hard for investors to think about it intuitively. We have no muscle memory for it. It’s hard to harken back to 30 years ago. We have been lulled to sleep,” he said.

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What always happpens when everyone is on the same side of the boat.

Dangerous Game: Shorting the VIX (Barron’s)

As stocks keep dancing around record highs, and the CBOE Volatility Index remains historically low, some investors are preparing for a violent end to one of the world’s most popular trades: shorting volatility. A one-day Standard & Poor’s 500 correction of 3% to 4% could force some funds that short futures on the index, such as the ProShares Short VIX Short-term Future s exchange-traded fund (ticker: SVXY) and the VelocityShares Daily Inverse VIX ST ETN (XIV), to cover their positions. That could make the VIX skyrocket. If the weighted-average of 30-day VIX futures sharply jumped—say by 80% in one day—it would, in turn, trigger an “acceleration event” that would force more funds to buy back short VIX futures contracts. Some VIX funds could face margin calls.

And a chain reaction would likely explode across the volatility spectrum and ultimately the stock market, pushing down share prices and boosting volatility further. So many institutional investors use strategies that increase portfolio leverage as equity volatility declines that Marko Kolanovic, JPMorgan’s top quantitative strategist, fears the markets are nearing a turning point. “While these strategies include concepts like ‘risk control’, ‘crisis alpha’, etc. in various degrees they rely on selling into market weakness to cut losses. This creates a ‘stop-loss order’ that gets larger in size and closer to the current market price as volatility gets lower,” Kolanovic wrote last week. The S&P 500’s realized volatility–the level that’s materialized already—is the lowest since 1966. That influences expectations for future, or implied, volatility.

In fact, CBOE Volatility Index levels are so meager that relatively small point moves can create big percentage changes, creating a major problem for VIX funds. “The one-day percentage change is a big deal in the VIX complex because the levered and inverse VIX ETFs and ETNs rebalance daily, based on the percentage change, and some of the thresholds for forced [unwinding of positions] are based on the percentage change. This is why lower volatility creates higher risk,” Christopher Metli, a Morgan Stanley quantitative derivatives strategist, recently warned clients.

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But Draghi gets praised for saving the EU economy. Well, you can’t have it both ways. Decide.

Zombie Companies Littering Europe May Tie the ECB’s Hands for Years (BBG)

Watch out for the zombies. The plethora of companies propped up by the ECB will limit policy makers’ ability to withdraw monetary stimulus that’s been supporting the continent’s bond market since the financial crisis, according to strategists at Bank of America. About 9% of Europe’s biggest companies could be classified as the walking dead, companies that risk collapse if the support dries up, according to the analysts. After the crash of Lehman Brothers sent global markets into a tailspin, a decade of easy-money policies gave breathing room for nations to get their balance sheets in check and allowed for a spirited revival in corporate profits. But as central bankers look to pull back stimulus for fear of overheating, the potentially grim outlook for vulnerable companies may give them pause, according to Bank of America.

“Monetary support in Europe over the last five years has allowed companies with weak profitability to continue to refinance their debt and stave off defaults,” analysts led by Barnaby Martin wrote in a note Monday. “This supports the point that our economists have been making: that the ECB will likely be very slow and patient in removing their extraordinary stimulus over the next year and a half.” The strategists classify zombies as non-financial companies in the Euro Stoxx 600 with interest-coverage ratios – earnings relative to interest expenses – at 1 or less. The thinking goes that companies in this category are particularly vulnerable to rising interest rates. About 6% of European companies had a coverage ratio of less than 1 on the eve of Lehman’s downfall, a %age that fell to as low as 5% in 2013 when the euro-area sovereign debt crisis cooled.

Zombies shot up to as high as 11% in June 2016 before easing in recent months. Energy companies, thanks to weak oil prices, and those based in southern Europe –particularly smaller firms faced with weak profit generation amid feeble growth – make up a disproportionate share of the zombie world, according to Bank of America. To be sure, different metrics tell different stories about the health of corporate leverage, with some investors citing growth projections and yardsticks like net debt to earnings as reasons bond buyers can be more sanguine. But the coverage ratio is particularly useful in projecting how companies can cover debt costs from their earnings as interest costs rise.

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Leverage kills.

Markets Relax Merrily on a Powerful Time Bomb (WS)

Stock and bond market leverage is everywhere. Some of it is transparent, such as NYSE margin debt which was $539 billion as of the June report. But the hottest form of stock and bond market leverage is opaque, offered by financial firms that usually don’t disclose the totals: securities-based loans (SBLs) — or “shadow margin” because no one knows how much of it there is. But it’s a lot. And it’s booming. These loans can be used for anything – pay for tuition, fix up that kitchen, or fund a vacation. The money is spent, the loan remains. When security prices fall, the problems begin. Finra, the regulator for brokerages, doesn’t track this shadow margin, nor does the SEC. Both, however, have been warning about the risks. No one knows the overall amount of this shadow margin, but some details have been reported:

Morgan Stanley had $36 billion of these loans on its balance sheet as of the end of 2016, up 26% from 2016, and more than twice the amount in 2013. • Bank of America Merrill Lynch had $40 billion in SBLs on the balance sheet at the end of 2016, up 140% from 2010; • UBS and Wells Fargo “also have made billions in such loans, people familiar with those banks” told the Wall Street Journal. Raymond James, Stifel Nicolaus… they’re all doing it. • Fidelity used to fund its own SBLs for its clients, but three years ago partnered with US Bancorp. • Even the little ones are trying to get their slice of the pie: In April, robo-advisory startup Wealthfront, with less than $6 billion, announced that it would offer SBLs to its clients.

And now Goldman Sachs, which has been offering SBLs to its 12,000 super-wealthy clients through its Private Banking unit — accounting “for more than half of the unit’s $29 billion in loans outstanding,” according to the Wall Street Journal — announced on Thursday that this wasn’t enough and that it is partnering with Fidelity Investments to spread these loans far and wide.

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No. It’s an outright lie. Pure make believe.

US Economic Resilience Is An Exaggeration (DDMB)

Are US Federal Reserve stress tests leading economic indicators? That certainly seems to be the case. Just ask Capital One. As of the first quarter, credit card loss provisions at Capital One were above 5%, a six-year high. The company recorded some improvement for the second quarter, yet Fed stress tests of the bank’s overall loan portfolio in a deep downturn show losses topping 12%. That explains Capital One’s “conditional” passing score, a black eye that prompted a reduced share buy-back plan and no increase in its dividend. Most economists today applaud the resilience of the current recovery, which has stretched into its eighth year, the third-longest in postwar history. Resilience and rising household defaults, though, don’t tend to go hand in hand.

Pressures have been building in the background for some time. When adjusted for inflation, credit card usage has grown faster than incomes for 18 months. According to Fed data, that time frame coincides with the upturn in revolving credit, a proxy for credit card debt. In November 2015, outstanding revolving credit crossed above the $900-billion threshold for the first time since December 2009. By May of this year, annual growth was clocking 8.7%. Meanwhile, credit card balances hit $1.02 trillion, the highest level in almost eight years. Whether by choice or force, the aftermath of the financial crisis prompted households to ratchet back their usage of credit cards. As the recovery got underway, frugality prevailed, punctuated by an increase in debit card purchases.

It is thus notable that Bank of America data find debit card usage has weakened in recent years as households grew more comfortable rebuilding their credit card balances. “Confidence” is the term most associated with the rising credit card debt. But it’s fair to ask why confident households would choose to pay so dearly for the privilege. At 15.83%, the average rate on credit card balances is at a record high. It is more likely that households are increasingly tapping their credit cards to cover the cost of necessities, that they are less confident and more anxious about their future finances.

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This should be presented as a major mea culpa by WaPo, but no, it’s not them, it’s “the media” who screwed up. NYT runs similar piece. WIll they all fit through the exit door at the same time?

The Quest To Prove Collusion Is Crumbling (WaPo)

While everyone is fixated on President Trump’s unbecoming and inexplicable assault on Attorney General Jeff Sessions, the media has been trying to sneak away from the “Russian collusion” story. That’s right. For all the breathless hype, the on-air furrowed brows and the not-so-veiled hopes that this could be Watergate, Jared Kushner’s statement and testimony before Congress have made Democrats and many in the media come to the realization that the collusion they were counting on just isn’t there. As the date of the Kushner testimony approached, the media thought it was going to advance and refresh the story. But Kushner’s clear, precise and convincing account of what really occurred during the campaign and after the election has left many of President Trump’s loudest enemies trying to quietly back out of the room unnoticed.

Cable news airtime and in-print word count dedicated to the nonexistent collusion story appear to be dwindling. Democrats and their allies in the media seem less eager to talk about it, and when they do, they say something to the effect of “but, but, but … Kushner didn’t answer every question … He wasn’t under oath … There are still more witnesses … What about this or that new gadfly?” They are stammering. And it hasn’t taken long for news producers and editors to realize that the story is fading. At last, the story that never was is not happening. There are a few showstoppers from Kushner’s testimony that make it obvious to any fair-minded, thinking person that there was no collusion with Russia. In his own words, Kushner makes it clear that his actions were innocent but, at times, misguided and ill-conceived.

He plainly states he had “hardly any” contacts with Russians during the campaign and found his June 2016 meeting with Donald Trump Jr. and the infamous Russian lawyer to be an absolute “waste of time.” Democrats and their allies in the media have exhausted themselves building a scandalous narrative surrounding the Russian lawyer meeting, but according to Kushner, the meeting was so useless that he “actually emailed an assistant from the meeting after [he] had been there for ten or so minutes and wrote ‘Can u pls call me on my cell? Need excuse to get out of meeting.”’ Maybe the collusion didn’t take very long, or maybe he realized what the lawyer had to say was a useless farce and he wanted to get on with his day.

Much to the dismay of Trump’s haters, Kushner’s account of events even further proves just how far the media has stretched the collusion story. When the campaign received an official note of congratulations from Russian President Vladimir Putin the day after the election, Kushner had to send Dimitri Simes of the Center for the National Interest an email asking for the name of the Russian ambassador so that he could reach out and confirm the message’s authenticity. So, that’s that. If you can’t remember your handler’s name, you can’t be guilty of nefariously colluding with that person. How much collusion could Kushner have possibly done with someone whom he had so little communication with that he could not remember his name and did not know how to contact him?

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From interview with David Sirota. Party has no future. Get out or go down with it.

What’s The Matter With Democrats – Thomas Frank (IBT)

Basically, I think the Democratic party is in deep trouble. The evidence of that is now plain, I think, to everyone — that they’re in a state of historic wipe-out across the country and in both of Houses of Congress, and of course, they lost the presidency, too… The leadership of the party have persuaded themselves that they don’t really have a problem, that all they have to do is wait for [Donald] Trump to screw up and they’ll waltz right back in, and so they don’t have to do anything different. I think Trump represents the culmination of a long-term shift of working people, working-class people away from the Democratic Party.

[..] The way I look at it is that this is a long-term problem. This is a culmination of a very long-term problem with the Democrats very gradually, but definitely, abandoning the interests of working-class voters, identifying themselves instead with a more affluent group, with the affluent white-collar professionals. It starts in the 1970s with the Democrats removing organized labor from its structural position in the Democratic party, and then it goes up through Bill Clinton getting NAFTA done, the free trade deals that the Democrats have … By the way, in my opinion, free trade or the trade agreements, I should say, was probably the issue that if there was one issue that really did Hillary in, I think that’s what it was: the trade deals under the Clinton administration, Obama sort of dropping the ball on labor’s various issues, doing these incredible favors for Wall Street while he blew off the concerns of union.

[..] Bailouts. The Wall Street bailout was the worst. This was, of course, George W. Bush … No, take a step back further. The deregulation under Clinton. Do you remember, bank deregulation was something that we now think of it as one of the central elements of neoliberalism, but Reagan couldn’t get it done. Reagan tried. They put some dents in Glass Steagall when Reagan was president, but it took a Democrat to really get it done, Bill Clinton, and it wasn’t just blowing up Glass-Steagall. There was this whole series of bank deregulatory measures when he was president. By the end of his term in office, basically, Wall Street was more or less openly identified with the Democratic Party. This is an enormous historical shift…

The Democratic party [used to be] this sworn enemy of Wall Street. Franklin Roosevelt broke up all of these banks, the Glass Steagall Act, put all these banks out of business, and set up the Securities and Exchange Commission to regulate these guys, all of these regulatory measures. That’s the Democratic heritage. That’s the legacy of the New Deal. Up until the days of Clinton, that’s really who the Democratic Party was. They had a very populist tone, and they would never identify themselves with Wall Street. Barack Obama comes in, and I was one of these people who thought that he represented a turn back in the other direction and that he would be, very shortly would be, getting tough with Wall Street. He had all the bailouts were underway. He had total authority over these guys, and he didn’t do it. Instead, he appointed all these various Clinton people to come in and manage the bailout situation.

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Like that line.

Decades From Now, They’ll Say He Had “The Tweets” (Jim Kunstler)

I know I’m not the first to point out how Anthony Scaramucci, President Trump’s brand new Communications Director, is suddenly and eerily carrying on like his namesake, the arch-rascal / buffoon of the Old World Commedia dell’Arte in lashing out at his fellow scamps and bozos in the clown school that the White House has become. Of course, these antics only reflect the astounding violent vulgarity of current US culture in general, especially as it recursively re-amplifies itself in the distorting echo chamber of TV. It’s how we roll nowadays – right up the collective butt-hole of history until some fateful event provokes a last frightful purging of our own bullshit. Still, it was rather shocking to hear Scaramucci refer to White House Chief of Staff Rance Priebus as “a fucking paranoid schizophrenic” and Trump ultra-insider Steve Bannon as someone who “enjoys sucking his own cock.”

It’s kind of like Paulie Walnuts of “The Sopranos” wandered into the West Wing of “Veep.” Somebody’s gonna get whacked, and it’ll be a laugh-riot when it happens. We need a little comic relief in these midsummer horse latitudes of the mind as the ill-starred Trump Show appears to enter its ceremonial death dance. There’s also something satisfyingly Napoleonesque about Scaramucci. Here’s a guy who cuts through the odious blubber of US politics right to the bone of things with a flensing blade of profane righteousness. Personally, I’d like to see him take some whacks at a few more deserving targets, and I can even imagine a somewhat farfetched scenario where the little guy shoves Trump out during a concocted national emergency and manages to declare himself First Citizen, or some such innovative title allowing him to run things for a while – say, until the generals toss him out a window.

Or maybe he’ll last less than a week in his current position. I would not be surprised, either, if Mr. Bannon beats little Mooch to death with an Oval Office fireplace poker right in front of the Golden Golem of Greatness himself. The mills of the gods grind slowly, but they grind exceedingly fine – in this case, inexorably toward the restorative medicine of the 25th amendment. There is, after all, that hoary old artifact called the national interest lurking somewhere offstage aside of all this colorful mummery, especially as the Russian Meddling gambit appears to be dribbling away to nothing. It’s more than self-evident that poor Trump is in so far over his head that he’s come down with something like the bends, a debilitating systemic disorder rendering him unfit to execute the powers of office. Decades from now, they’ll say he had “the tweets.”

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You do know you live in a feudal society, right?

Leasehold Tycoon Whose Firms Control 40,000 UK Homes (G.)

He does not appear on any rich list but he has built a property empire that rivals that of the Duke of Westminster. Companies controlled by James Tuttiett, aged 53, have quietly snapped up the freeholds of tens of thousands of houses and flats in almost every city in Britain, which are now at the centre of controversy over spiralling ground rents. The scale of Tuttiett’s property empire has never been previously disclosed. Documents at Companies House reveal that he is frequently the sole director of companies that own the freehold of large-scale developments in Newcastle, Birmingham, Leeds, Coventry and London. Leaseholders are obliged to pay ground rents to his company, E&J Estates, that in some cases will soar to £10,000 a year per home.

The government this week proposed a ban on new-build leaseholds, and said ground rents on new apartments should fall towards zero. At the launch of an eight-week consultation, the communities secretary, Sajid Javid, said: “It’s clear that far too many new houses are being built and sold as leaseholds, exploiting homebuyers with unfair agreements and spiralling ground rents.” “Enough is enough. These practices are unjust, unnecessary and need to stop,” said Javid, adding on BBC Radio 4’s Today programme that ground rent had been used “as an unjustifiable way to print money”. [..] Research by Guardian Money found an extraordinary web of 85 ground rent companies controlled by Tuttiett, where the freeholds include not just homes but also schools, health clubs and petrol stations.

In 2016 one of these 85 companies, SF Funding Ltd, recorded an £80m increase in the value of its ground rents from the year before, taking them to £267.4m. Tuttiett is the sole director of the company, which has no other employees. The financing of Tuttiett’s property empire is helped by low-interest loans totalling £336m made by an insurance company, Rothesay Life, spun out of Goldman Sachs, in which the US investment bank remains the largest shareholder. Among the Rothesay Life loans made to E&J is one at £128m with a stated interest rate of just 0.95% a year, although it is understood the real rate paid is likely to be higher. The existence of the Rothesay loans opens a back door into Tuttiett’s interests, as Companies House lists all the properties over which Rothesay has a charge.

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Lenders are getting out. But not because they care about the earth.

Companies Abandon Nearly One Million Hectares of Alberta Oilsands (CP)

In another sign the bloom is off the boom for the oilsands, the industry has returned almost one million hectares of northern Alberta exploration leases to the province over the past two years. The total area covered by oilsands leases remained constant at about nine million hectares between 2011 and 2014. But it fell to 8.5 million hectares in 2015 and 8.1 million in 2016, following the crash in world oil prices from over US$100 to under $60 per barrel in 2014. Most of the returned acreage either represents expired or surrendered leases, according to Alberta Energy. Observers were surprised by the size of the lease returns which they attributed to industry cost-cutting and disinterest in spending to develop new prospects when there’s no money to build projects already on the books.

“It costs money to maintain these lands,” said Brad Hayes, president of Petrel Robertson Consulting in Calgary. “You can’t convince shareholders to continue to put that money out if there’s no prospect for success.” Alberta’s oilsands have been getting little respect lately, thanks to the exit of large foreign companies, the province’s hard cap on oilsands emissions, increasing carbon taxes and the stumbling price of crude oil. Its troubles have been welcomed by environmentalists who point out the industry’s outsized impact on air, land and water pollution. “This is good news. It’s a sign that investment dollars are shifting out of carbon-intensive energy,” said Keith Stewart, senior energy strategist with Greenpeace Canada.

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Feels like all they do is try to create an ever bigger mess. Throw in another €100 million and say: We tried!

EU Accused Of ‘Wilfully Letting Refugees Drown’ In The Mediterranean (Ind.)

Aid workers have accused the EU of “wilfully letting people drown in the Mediterranean” as they face being forced to suspend rescue missions for refugees attempting the world’s deadliest sea crossing. Italy is attempting to impose a code of conduct on NGOs operating ships in the search and rescue zone off the coast of Libya, which is now the main launching point for migrants trying to reach Europe on smugglers’ boats. Humanitarian groups have argued the code will impede their work by banning the transfer of refugees to larger ships, which allows vessels to continue rescues, and forcing them to allow police officers on board. A revised code of conduct is expected to be presented by the Italian interior ministry on Monday, following meetings between officials and NGOs.

The 11-point plan, which has been approved by the European Commission and border agency Frontex, could see any groups refusing to sign up denied access to Italian ports or forbidden from carrying out rescues. They are currently deployed by officials at Rome’s Maritime Rescue and Coordination Centre (MRCC) and charities fear any move to restrict their operations, leaving just Italian coastguard and naval ships, will dramatically reduce rescue capacity during peak season. German charity Sea-Watch announced the deployment of a second rescue vessel in response to the plans, which it called a “desperate reaction” by a country abandoned on the frontline of the refuge crisis by its European allies. “The EU is wilfully letting people drown in the Mediterranean by refusing to create a legal means of safe passage and failing to even provide adequate resources for maritime rescue,” said CEO Axel Grafmanns.

“The NGOs are currently bearing the brunt of the humanitarian crisis and they are being left alone.” Médecins Sans Frontières (MSF), which has staff on two rescue ships, said it was engaging with Italian authorities in an “open and constructive way” over the proposed code but had serious concerns over several clauses. “MSF employees are humanitarian workers, not police officers, and that for reasons of independence they will do what is strictly requested by the law but nothing more so as to protect our independence and neutrality,” a spokesperson said.

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Jan 302017
 
 January 30, 2017  Posted by at 10:15 am Finance Tagged with: , , , , , , , , ,  7 Responses »


Edvard Munch Vampire 1893

Canadian PM Says Québec Mosque Shooting A ‘Terrorist Attack On Muslims’ (R.)
Canada To Offer Temporary Residency To Travelers Stranded By US (R.)
Trump Immigration Order Restricted By More US Judges (R.)
Priebus Says Trump’s Immigration Ban Doesn’t Include Green Card Holders (BBG)
Theresa May Confirms UK Exempt From Trump’s ‘Muslim Ban’ (Ind.)
A Clarifying Moment in American History (Eliot A. Cohen)
US Became A Dumping Ground For The World. No More (CNBC)
The Persuasion Filter and Immigration (Adams)
Theresa May To Warn Devolved Nations: You Have No Veto On Brexit (G.)
UK and EU Heading For Economic Cold War – Italian Foreign Minister (G.)
Eurozone ‘Destruction’ Necessary For Countries To Thrive Again – Stark (Tel.)
The Dollar Will Die With a Whimper, Not a Bang (Rickards)
Dow Companies Report Worst Revenues since 2010, Dow Rises to 20,000 (WS)
Eurozone Bailout Fund Says Greek Public Debt Is ‘Manageable’ (R.)
Turkish Gunboat With Army Chief Sails Into Greek Waters; High Alert (K.)
Greek Fishermen Who Brave The Seas To Rescue Refugees Now Need Saving (NBC)
NASA – 30 Years Of Before And After Images Around The World (F.)

 

 

Be wary of false flags. And ponder how much Canada is ahead of anybody else on immigration.

Canadian PM Says Québec Mosque Shooting A ‘Terrorist Attack On Muslims’ (R.)

Six people were killed and eight wounded when gunmen opened fire at a Quebec City mosque during Sunday night prayers, in what Canadian Prime Minister Justin Trudeau called a “terrorist attack on Muslims”. Police said two suspects had been arrested, but gave no details about them or what prompted the attack. Initially, the mosque president said five people were killed and a witness said up to three gunmen had fired on about 40 people inside the Quebec City Islamic Cultural Centre. Police said only two people were involved in the attack. “Six people are confirmed dead – they range in age from 35 to about 70,” Quebec provincial police spokeswoman Christine Coulombe told reporters, adding eight people were wounded and 39 were unharmed.

The mosque’s president, Mohamed Yangui, who was not inside when the shooting occurred, said he got frantic calls from people at evening prayers. “Why is this happening here? This is barbaric,” he said. Prime Minister Justin Trudeau said in a statement: “We condemn this terrorist attack on Muslims in a center of worship and refuge”. “Muslim-Canadians are an important part of our national fabric, and these senseless acts have no place in our communities, cities and country.” The shooting came on the weekend that Trudeau said Canada would welcome refugees, after U.S. President Donald Trump suspended the U.S. refugee program and temporarily barred citizens from seven Muslim-majority countries from entering the United States on national security grounds.

A Canadian federal Liberal legislator, Greg Fergus, tweeted: “This is an act of terrorism – the result of years of sermonizing Muslims. Words matter and hateful speeches have consequences!” The premier of Quebec province, Philippe Couillard, said security would be increased at mosques in Quebec City and Montreal. “We are with you. You are home,” Couillard said, directing his comments at the province’s Muslim community. “You are welcome in your home. We are all Quebecers. We must continue together to build an open welcoming and peaceful society”.

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Immigration Minister Ahmed Hussen was born in Somalia.

Canada To Offer Temporary Residency To Travelers Stranded By US (R.)

Canada will offer temporary residency to any travelers stranded by U.S. President Donald Trump’s orders temporarily barring people from seven Muslim-majority countries, a senior official said on Sunday. Immigration Minister Ahmed Hussen told a news conference he did not know how many people might be eligible but said only a handful of passengers headed to the United States from Canada had been denied boarding. Trump’s decision on Friday, which also affects refugees, left many people uncertain of whether they could enter the United States. “Let me assure those who may be stranded in Canada that I will use my authority as minister to provide them with temporary residency if they need it,” Hussen said.

Liberal Prime Minister Justin Trudeau’s government has refrained from criticizing the United States, which takes 75% of Canadian exports, preferring instead to stress Canada is open to refugees. “Every country has the right to determine their policies,” said Hussen. The Canadian Council for Refugees and the Canadian Civil Liberties Association, or CCLA, called on Ottawa to withdraw from a Safe Third Country agreement with the United States, under which Canada returns asylum seekers crossing the border. “There’s a danger that the U.S. is doing blanket detentions and deportations … and not honoring asylum claims,” said CCLA Executive Director Sukanya Pillay. Such a move would be diplomatically insulting and Hussen said the pact would remain unchanged for now.

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Many many lawsuits in the pipeline. Attorneys general are getting together to challenge this. Sharp edges are already being blunted.

Trump Immigration Order Restricted By More US Judges (R.)

U.S. judges in at least four states blocked federal authorities from enforcing President Donald Trump’s executive order restricting immigration from seven Muslim-majority countries. Judges in Massachusetts, Virginia and Washington state, each home to major international airports, issued their rulings late Saturday or early Sunday, following an order on Saturday night by U.S. District Judge Ann Donnelly in New York’s Brooklyn borough. Donnelly had ruled in a lawsuit by two men from Iraq being held at John F. Kennedy International Airport. While none of the rulings struck down the executive order, the growing number of orders could complicate the administration’s effort to enforce it. Trump’s order on Friday halted immigration from Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen for 90 days, and stopped the resettlement of refugees for 120 days.

The new Republican president said these actions were needed “to protect the American people from terrorist attacks by foreign nationals admitted to the United States.” Condemnation of the order was swift and broad-based. Democratic politicians and civil rights groups weighed in, as well as U.S. allies who view the actions as discriminatory and divisive. Democratic attorneys general from California, New York and other states, meanwhile, were discussing whether to pursue their own legal challenges. The U.S. Department of Homeland Security on Sunday said it “will comply with judicial orders,” while enforcing Trump’s executive order in a manner that ensures those entering the United States “do not pose a threat to our country or the American people.”

Across the United States, lawyers worked overnight to help confused international travelers at airports. Activists and lawyers tracking the arrivals said some Border Patrol agents appeared to be disregarding the various court orders. “There is really no method to this madness,” Becca Heller, director of the New York-based International Refugee Assistance Project organization, told reporters on a conference call.

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Homeland Security Secretary John Kelly has confirmed this.

Priebus Says Trump’s Immigration Ban Doesn’t Include Green Card Holders (BBG)

The White House defended President Donald Trump’s executive order halting entry to the U.S. from seven predominantly Muslim Middle East countries after judges blocked parts of the plan. Republican lawmakers suggested the president’s action was too broad and potentially damaging to the U.S. Trump’s chief of staff said the immigration order doesn’t include holders of green cards, although those people could be subject to additional steps when they travel overseas. A federal judge in Boston became the latest to curb Trump’s immigration order, directing customs officials at the city’s Logan International Airport on Sunday to let passengers from the seven countries with valid visas disembark and go on their way. Trump told his almost 23 million Twitter followers on Sunday morning: “Our country needs strong borders and extreme vetting, NOW. Look what is happening all over Europe and, indeed, the world – a horrible mess!”

[..] The judges’ moves came at the end of a day when a number of students, refugees and dual citizens were stuck overseas or detained, and some businesses, including Google, warned employees from those countries not to risk leaving the U.S. Spontaneous protests erupted at a number of airports around the nation, and world leaders including London’s mayor and Canada’s prime minister joined U.S. lawmakers in crying foul. Although some U.S. visa and green-card holders were blocked from boarding flights to the U.S. on Saturday after the order was issued, “the executive order doesn’t affect green-card holders moving forward,” Reince Priebus, the White House chief of staff, said Sunday on NBC’s “Meet the Press” in what seemed to be an adjustment to the administration’s policy.

He added that green-card holders – legal permanent residents – may be subject to additional screening if they travel to one of the seven countries targeted by the order. Even U.S. citizens may be affected: “I would suspect that if you’re American citizen traveling back and forth to Libya you’re likely to be subjected to further questioning when you come into an airport.,” Priebus said.

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As is Canada.

Theresa May Confirms UK Exempt From Trump’s ‘Muslim Ban’ (Ind.)

Theresa May has confirmed most UK citizens will not be affected by Donald Trump’s “Muslim ban” in a frantic bid to prevent a broad backlash against the policy from damaging her government. Foreign Secretary Boris Johnson sought the clarification in anxious calls to senior figures in Mr Trump’s team, highlighting the political problems the ban was causing Ms May’s administration. The Prime Minister had finally told Mr Johnson and Home Secretary Amber Rudd to “make representations” to their US counterparts, after she initially refused to condemn the ban sparking an angry backlash from her own MPs and others. Her early reluctance to criticise it came after she was the first foreign leader to visit Mr Trump at the White House, where the pair were pictured holding hands and the President delighted Ms May by expressing a desire to sign a quick post-Brexit trade deal with the UK.

The clarification to Mr Trump’s plan to temporarily ban travellers coming into the US from a group of predominantly Muslim countries – Iraq, Iran, Libya, Somalia, Sudan, Syria and Yemen – confirms that the only people affected will be dual citizens of the UK and a listed country, going directly to the US from the listed country. But it is unclear if the move by ministers will be enough to quell anger over the ban, much of which was targeted at its discriminatory nature rather than the effect on Britons alone. As events unfolded on Sunday, Conservatives demanded Mr Trump be forbidden from addressing Parliament on his state visit, Labour and the Lib Dems called for the President to be banned from the country and champion athlete Sir Mo Farah launched an outspoken attack on the ban.

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“..as Lincoln put it, a perpetual story of “a rebirth of freedom”..”

A Clarifying Moment in American History (Eliot A. Cohen)

In an epic week beginning with a dark and divisive inaugural speech, extraordinary attacks on a free press, a visit to the CIA that dishonored a monument to anonymous heroes who paid the ultimate price, and now an attempt to ban selected groups of Muslims (including interpreters who served with our forces in Iraq and those with green cards, though not those from countries with Trump hotels, or from really indispensable states like Saudi Arabia), he has lived down to expectations. Precisely because the problem is one of temperament and character, it will not get better. It will get worse, as power intoxicates Trump and those around him. It will probably end in calamity—substantial domestic protest and violence, a breakdown of international economic relationships, the collapse of major alliances, or perhaps one or more new wars (even with China) on top of the ones we already have.

It will not be surprising in the slightest if his term ends not in four or in eight years, but sooner, with impeachment or removal under the 25th Amendment. The sooner Americans get used to these likelihoods, the better. The question is, what should Americans do about it? To friends still thinking of serving as political appointees in this administration, beware: When you sell your soul to the Devil, he prefers to collect his purchase on the installment plan. Trump’s disregard for either Secretary of Defense Mattis or Secretary-designate Tillerson in his disastrous policy salvos this week, in favor of his White House advisers, tells you all you need to know about who is really in charge. To be associated with these people is going to be, for all but the strongest characters, an exercise in moral self-destruction.

For the community of conservative thinkers and experts, and more importantly, conservative politicians, this is a testing time. Either you stand up for your principles and for what you know is decent behavior, or you go down, if not now, then years from now, as a coward or opportunist. Your reputation will never recover, nor should it. Rifts are opening up among friends that will not be healed. The conservative movement of Ronald Reagan and Jack Kemp, of William F. Buckley and Irving Kristol, was always heterogeneous, but it more or less hung together. No more. New currents of thought, new alliances, new political configurations will emerge. The biggest split will be between those who draw a line and the power-sick—whose longing to have access to power, or influence it, or indeed to wield it themselves—causes them to fatally compromise their values.

For many more it will be a split between those obsessed with anxiety, hatred, and resentment, and those who can hear Lincoln’s call to the better angels of our nature, whose America is not replete with carnage, but a city on a hill. This is one of those clarifying moments in American history, and like most such, it came upon us unawares, although historians in later years will be able to trace the deep and the contingent causes that brought us to this day. There is nothing to fear in this fact; rather, patriots should embrace it. The story of the United States is, as Lincoln put it, a perpetual story of “a rebirth of freedom” and not just its inheritance from the founding generation.

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Isn’t it simply the result of having the reserve currency, though?

US Became A Dumping Ground For The World. No More (CNBC)

America’s shift toward bilateral trade deals shows a total loss of faith in the ability of multilateral forums (G7 … G20) and U.N. agencies (IMF, etc.) to rebalance the world economy through effective international policy coordination. That was long time coming – a sad coda to the global economic (political) and financial order created at the Bretton Woods Conference in July 1944. It is at that time that the economic policy coordination was enshrined as one of the fundamental principles in the IMF’s Articles of Agreement, enjoining both surplus and deficit countries to balance out their external trade positions. What followed – to this day – has been an unending comedy of errors, recriminations and hypocrisy as policy coordination and rules of a sustainable free trade were shunned in pursuit of self-serving national interests.

Predictably, surplus countries refused to adjust (i.e., to reduce their surpluses by running stronger domestic demand to boost imports), extolled their “economic virtue” and continued to live off their trade partners. But deficit countries had no choice; they had to adjust (i.e., to reduce their deficits by shrinking their domestic demand and cutting down their imports) because they ran out of money and had to submit to foreign lenders demanding strict conditions with respect to the timing and magnitude of their trade adjustment. And here is the world we ended up with. Germany is currently running the world’s largest trade surplus of $300 billion. China is not very far behind with a $264 billion surplus. Japan’s $200 billion surplus is rapidly catching up with its large Asian neighbor, and a group of smaller export-driven East Asian countries is showing a steadily rising surplus of $300 billion.

These countries account for 40% of world GDP, but their combined trade surpluses of $1 trillion represent about 80% of the world’s total. In other words, nearly half of the world economy is a drag on the rest of the global demand, output and employment. Do you still wonder why the world economy is stuck in a hopelessly slow lane? With its systematic half-a-trillion dollars of quasi structural trade deficits, the U.S. accounts for 40% of the world’s total (trade deficits) and bears the brunt of what some would call beggar-thy-neighbor trade policies. In a more polished diplomatic “G something” language, you could also call that a “collateral damage” of uncoordinated global economic policies. Damage it is. Over the last two years, these trade deficits have taken an entire percentage point out of America’s sluggish economic growth.

Think also of the huge downward pressure on output and employment these deficits exerted, and continue to exert, in our import-competing industries. And think of this, too. While the surplus countries keep accumulating reserves and net foreign assets by recycling the money we pay for our imports, our trade deficits got us to a huge net foreign debt of $7.8 trillion during the first three quarters of last year – a $1 trillion increase from the same period in 2015. People carping about imaginary trade wars say that this is nothing to worry about. They believe that China, Japan and the rest of “dynamic Asia” will keep lending us the money we pay for their imports, and that they will be happy to hold $2.7 trillion of our IOUs – 46% of the total held by foreign investors – as they did at the end of last November. These, of course, are fairy tales. America’s trade problems are urgent and vitally important policy issues.

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I know people hate him, but he’s interesting.

The Persuasion Filter and Immigration (Adams)

[..] my starting point is the understanding that human brains did not evolve to show us reality. We aren’t that smart. Instead, our brains create little movies in our heads, and yours can be completely different from mine. We see that situation now. Half the country thinks President Trump is well on his way to becoming a Hitler-like dictator. But many other Americans think Trump is an effective business person with good intentions. They can’t both be right. I use the word “filter” to describe an optional way of looking at the world. A good filter is one that makes you happy and does a good job of predicting what happens next. Let’s use that standard to compare the Hitler Filter to what I call the Persuasion Filter. The Hitler filter clearly isn’t making people happy. The people watching that movie are protesting in the streets.

Meanwhile, the people who see Trump as a good negotiator looking out for the country are quite happy with the job he has done so far. The Persuasion Filter says Trump opens with a big first offer and negotiates back to something reasonable. If you don’t recognize the method, it looks crazy, random, and racist. But what about predictions? The Persuasion Filter predicting Trump would become president when the Hitler Filter thought he had no chance. Now we have another chance to test the predictive power of the Persuasion Filter. If Trump is a Master Persuader, as I have been telling you for over a year, he just solved his biggest problem with immigration and you didn’t notice. The biggest problem is that his supporters on the right want more immigration control than he can (or should) deliver while his many critics on the left want far less.

Normally when you negotiate there is only one party on the other side. But in this case, Trump is negotiating two extremes in two different directions. It’s the toughest possible situation. Best case scenario is that 40% of the country want you dead when it’s all over. Not good. So what does a President Trump do when he is in an impossible situation? According to the Hitler Filter, he does more Hitler stuff, such as being more extreme than anyone expected with his recent immigration declarations. That filter accurately predicted that he would be “worse” once elected. Sure enough, his temporary immigration ban is more extreme than most people expected. If things never get worse from this point on, we would have to question the Hitler Filter. But if things get worse still, the Hitler Filter is looking good.

Compare to the Persuasion Filter. This filter says Trump always opens with an extreme first offer so he has room to negotiate to the middle. The temporary ban fits that model perfectly. On the immigration topic alone, both the Hitler Filter and the Persuasion Filter predict that we get to exactly the point we are at today. Let’s call that a tie in terms of predictive power. The hard part is predicting what happens next. The Persuasion Filter says Trump is negotiating with his critics on the extreme right at the same time as he is negotiating with his critics on the left. He needed one “opening offer” that would set up both sides for the next level of persuasion. And he found it. You just saw it.

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Devolved: Scotland, Wales and Northern Ireland. What a mess this is going to be.

Theresa May To Warn Devolved Nations: You Have No Veto On Brexit (G.)

Theresa May is set for a bracing final round of Brexit talks with the leaders of the devolved nations before the likely triggering of article 50, with the prime minister warning her counterparts from Scotland, Wales and Northern Ireland that they can have no veto over the process. May is to see the other leaders in Cardiff on Monday at a meeting of the joint ministerial committee (JMC), the forum for soliciting views from around the UK on the process of leaving the UK. While the first ministers of Scotland and Wales, Nicola Sturgeon and Carwyn Jones, have stressed they cannot accept a hard Brexit without membership of or full access to the EU’s single market, May is set to tell them this will not be possible.

“We will not agree on everything, but that doesn’t mean we will shy away from the necessary conversations and I hope we will have further constructive discussions,” May said in comments released ahead of the meeting. Last week’s supreme court judgment on the need for MPs to vote on triggering article 50 “made clear beyond doubt that relations with the EU are a matter for the UK government and UK parliament”, May said. While the main element of the ruling was to oblige May to put the article 50 process, which will trigger departure from the EU, as a bill to parliament – a subsidiary element of the judge’s decision was that the devolved governments could not veto the process.

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Line of the day: “..We don’t need these kinds of tensions at this time of a geopolitical Jurassic Park..”

UK and EU Heading For Economic Cold War – Italian Foreign Minister (G.)

A senior Italian official has warned that the UK and the European Union are heading into an “economic cold war” over Brexit that could wreak havoc on the west and weaken the continent. Mario Giro, Italy’s deputy foreign minister, said that while many countries in the EU had said the UK’s vote to leave the EU represented a loss to the union, there were more hardliners in the EU against the UK than it appeared. “When we are among the 27 [countries within the EU, not including the UK], the hardliners are more numerous than it appears. I cannot quote a country in particular at the moment. We will see it at the beginning of the negotiation,” Giro said in an interview with the Guardian.

He added: “We are hearing more and more that there are people – economic interests – who are thinking they can inherit some economic position, thinking that they can take away from the UK some of the position of the City of London. Not Italy, of course, because we are not in that position. And this will be an economic war. Let’s say an economic cold war, and we are not in favour of it.” The statement followed remarks this month by the British prime minister, Theresa May, in which she said the UK was prepared for a “hard Brexit” if she could not negotiate a reasonable agreement with the EU over Britain’s departure. She said attempts by other EU countries to wreak vengeance on the UK would be an “act of calamitous self-harm” because the UK in turn would be prepared to radically cut taxes to attract businesses.

Italian officials have always said their top priority in Brexit negotiations would be to guarantee the rights of hundreds of thousands of Italians who lived in the UK. Giro suggested that a coming “battle of interests” – which he described as a competition between economic interests, not necessarily individual states – could have terrible consequences. “This will be a disgrace. To enter into a new era of hard competition on big money questions involving companies, this is very bad for the western world. We don’t need these kinds of tensions at this time of a geopolitical Jurassic Park,” he said, meaning that it was a world where every interest was out for itself.

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Creative destruction.

Eurozone ‘Destruction’ Necessary For Countries To Thrive Again – Stark (Tel.)

The eurozone must break up if its members are to thrive again, according to a former ECB official. Jürgen Stark, who served on the ECB’s executive board during the financial crisis, said it was time to “think the unthinkable” and work towards a “reset” of Europe that pulled power away from Brussels. The former vice-president of Germany’s Bundesbank said the creation of a two-speed eurozone, with France and Germany at its core, would help to ensure the smaller bloc’s survival. “We have to think the unthinkable. And it is already unthinkable to think about the restart of Europe, which means we have to be creative. But in order to be creative, you have to destruct [sic] something.” Mr Stark said countries such as Italy, which has seen its economy stagnate since the crisis, would be better off outside the single currency area.

“Italy was accustomed to this ongoing devaluation of the lira from the mid-Seventies until the late Nineties. Maybe they need devaluation and their own currency in order to become more competitive again,” he said. Speaking at an event organised by ETF Securities, Mr Stark said current accommodative ECB policy meant countries were likely to “muddle through” in the coming years and move closer “by coincidence”. However, he said the eurozone’s problems would resurface, regardless of the political landscape. “In the long run, in the context of a European reset, one has to discuss the issue of whether it is still appropriate to keep these countries with different economic structures and different economic performances together. There is no convergence anymore. “We have had divergence rather than convergence… from the very beginning.”

Mr Stark said Belgium, France, Luxembourg, the Netherlands and Germany “plus Austria and Finland” could form the core of a system with “staggered integration” for other countries such as Italy and Greece. While he described Marine Le Pen’s victory in French elections this year as “unlikely” due to the country’s voting system, Mr Stark said the Front National leader’s victory would also be the catalyst of a eurozone split. Mr Stark, who resigned from the ECB in 2011, said he “blamed” the central bank for allowing countries to drag their heels on reforms. “As long as the ECB gives a signal in its operations to governments that ‘we are the backstop’ and ‘we will prevent country ‘a’ or country ‘b’ from becoming insolvent’ – there will be no structural reforms,” he said.

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A correlation vs causation problem. Where the US was very strong, China is not.

The Dollar Will Die With a Whimper, Not a Bang (Rickards)

[..] the dollar and sterling seesawed over the 20 years following the First World War, with one taking the lead from the other as the leading reserve currency and in turn giving back the lead. In fact, the period from 1919–1939 was really one in which the world had two major reserve currencies — dollars and sterling — operating side by side. Finally, in 1939, England suspended gold shipments in order to fight the Second World War and the role of sterling as a reliable store of value was greatly diminished apart from the U.K.’s special trading zone of Australia, Canada and other Commonwealth nations. The 1944 Bretton Woods conference was merely recognition of a process of dollar reserve dominance that had started in 1914. The significance of the process by which the dollar replaced sterling over a 30-year period has huge implications for you today.

Slippage in the dollar’s role as the leading global reserve currency is not necessarily something that would happen overnight, but is more likely to be a slow, steady process. Signs of this are already visible. In 2000, dollar assets were about 70% of global reserves. Today, the comparable figure is about 62%. If this trend continues, one could easily see the dollar fall below 50% in the not-too-distant future. It is equally obvious that a major creditor nation is emerging to challenge the U.S. today just as the U.S. emerged to challenge the U.K. in 1914. That power is China. The U.S. had massive gold inflows from 1914-1944. Although China’s gold purchases may have fallen off recently, it has been experiencing massive gold inflows. Gold reserves at the People’s Bank of China increased to 1,842 tonnes at the end of 2016, according to the China Gold Association. That’s up 11% from the 1,658 tonnes it held in June, 2015.

But China has acquired thousands of metric tonnes since without reporting these acquisitions to the IMF or World Gold Council. Based on available data on imports and the output of Chinese mines, actual Chinese government and private gold holdings are likely much higher. It’s hard to pinpoint because China operates through secret channels and does not officially report its gold holdings except at rare intervals. China’s gold acquisition is not the result of a formal gold standard, but is happening by stealth acquisitions on the market. They’re using intelligence and military assets, covert operations and market manipulation. But the result is the same. Gold’s been flowing to China in recent years, just as gold flowed to the U.S. before Bretton Woods.

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Get your shades out. The future’s so bright.

Dow Companies Report Worst Revenues since 2010, Dow Rises to 20,000 (WS)

The Dow-20,000 hats have come out of the drawer after an agonizingly long wait that had commenced in early December with the Dow Jones Industrial Average tantalizingly close to the sacred number before the selling started all over again. What a ride it has been. From the beginning of 2011 through January 27, 2017, so a little more than six years, the DJIA has soared 73%, from 11,577 to 20,094. Glorious!! But when it comes to revenues of the 30 Dow component companies – a reality that is harder to doctor than ex-bad-items adjusted earnings-per-share hyped by Wall Street – the picture turns morose. The 30 Dow component companies represent the leaders of their industries. They’re among the largest, most valuable, most iconic American companies. And they’re periodically booted out to accommodate a changed world.

[..] Ah-ha, you say. It’s all the oil bust’s fault. Without the oil companies that have been ravaged by the oil bust, revenues are fine. OK, maybe not fine. Revenues without the oil bust companies are up 13% since 2011. That’s an average annual growth rate of 2.5%, barely above the rate of inflation! But the DJIA hit 20,000 with the oil majors in the average. So in looking at the relationship between aggregate revenues and stock price movements, we need to leave them in the mix. And reality looks even worse. Apple, whose revenues have skyrocketed by over 1,000% since 2006, from $19.3 billion to $216 billion, became a Dow component in 2015, replacing AT&T. And its revenues weren’t part of the 30 Dow components until 2015. So here’s what the aggregate revenues of the Dow components look like without Apple (blue columns) and without Apple but with AT&T (brown columns). A pure stagnation fest:

In both scenarios, revenues in 2016 were lower than they had been in 2008. Only 2009 and 2010 were lower. So in terms of revenues, 2016 was for the Dow components ex-Apple the worst year since 2010! And this despite the five-year binge in acquisitions! So how have the last two years been? Don’t even ask. Of the 30 companies in the Dow, 16 sported declining revenues in 2016. And 17 sported declining revenues over the two-year span since 2014! Only two of them are oil companies! This table shows that inglorious list in all its beauty:

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Deliberate torture in a sort of good cop bad cop routine.

Eurozone Bailout Fund Says Greek Public Debt Is ‘Manageable’ (R.)

Greece’s public debt can be manageable, the eurozone bailout fund said on Sunday, responding to a leaked report by the IMF that the country’s debt will explode to 275% of GDP by 2060. A spokesman for the bailout fund, the European Stability Mechanism (ESM), said the path for Greek public finances agreed between Athens and the eurozone was credible and backed by contingency measures in case of unforeseen events. “We believe that Greece’s debt burden can be manageable, if the agreed reforms are fully implemented, thanks to the ESM’s exceptionally favorable loan conditions over the long term and the recently adopted short-term debt relief measures,” the ESM said. In the document, seen by the Financial Times, the IMF calculated that Greece’s debt load would reach 170% of gross domestic product by 2020 and 164% by 2022.

But it would become explosive thereafter and grow to 275% of GDP by 2060, the paper quoted the report as saying. The spokesman said, however, that the eurozone had promised to offer Greece additional debt relief if Athens delivers on all its reform promises. “As a result, we see no reason for an alarmistic assessment of Greece’s debt situation”. The IMF has long been calling for substantial eurozone debt relief for Athens, but Germany, which faces elections this year, has been strongly opposed to such a move until after 2018, when Greece is to finish all its promised reforms. The IMF assessment of Greek debt developments may make it impossible for the Fund to join the current bailout for Greece, now shouldered only by eurozone governments, because the fund’s policy is to enter programs which in the end allow a country to cope on its own. Eurozone governments want the IMF on board, but do not seem to be ready to provide the debt relief to Greece that is necessary for the Fund to join.

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Incursions into Greek air space have become ‘normal’. Now this. Brussels better act. Or Greece will, at some point. It puts Theresa May’s fast trip to Ankara to sell more weaponry in a bleak light.

Turkish Gunboat With Army Chief Sails Into Greek Waters; High Alert (K.)

The Greek military was on high alert on Sunday after a Turkish gunboat carrying Chief of General Staff Hulusi Akar sailed into Greek waters and around the Imia islets at around 10.30 a.m. The Turkish gunboat was escorted by several assault craft carrying commandos, which also circled the islets that brought Greece and Turkey to the brink of war 21 years ago, almost to the day. Greek authorities responded to what is being viewed as Turkish provocation with warnings and dispatched the Hellenic Navy’s Krataios gunboat, which escorted the Turkish flotilla out of Greece’s territorial waters. Diplomatic officials believe the incident to be a response to a Greek Supreme Court ruling last week rejecting a request from Ankara for the extradition of eight Turkish servicemen accused of taking part in failed coup last summer. Turkish military authorities released photographs showing Akar on the gunboat, with Imia in the background.

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Bless their souls.

Greek Fishermen Who Brave The Seas To Rescue Refugees Now Need Saving (NBC)

At the height of the refugee crisis in Sept. 2015, the 63-year-old Marmarinos and the rest of the village’s fishermen gave up working to spend months saving families from the rough, cold waters. Many of them were seeking safety from the bombs falling on Syria. “Mothers, pregnant women, children,” Marmarinos recalled. “So many children, all in the waters, wet, in a horrible situation.” Pideris, 40, says the fishermen risked their own lives “because it was the humane thing to do.” He said refugees and migrants “would fall overboard, they didn’t know how to navigate, boats were left adrift, they’d lose their engines, they’d break apart and the sea would fill with people.” But today, it’s Pideris and Marmarinos who need help after a winter storm on January 9 dropped nearly two feet of snow in their village. The boat canopies couldn’t take the weight and capsized while tied up in the harbor.

The boats are the pair’s sole sources of income. Pideris said he was in shock. “I’ve been in danger at sea, fishing and helping refugees, and my boat sinks in the safety of the harbor,” he said. “My brain stopped. My heart stopped. I was the living dead.” Both vessels sat in the corrosive sea water for three days, until the roads cleared enough to bring in a crane. The electronics and engines on both vessels were destroyed and require thousands of dollars in repairs. The mayor of Lesbos says money from a humanitarian award — the Olof Palme prize, which given to the islanders for embracing migrants – will go toward the cost of repairs. Marmarinos says he’s proud “because I offered help and I see it’s coming back to me … Even if no one helped I’d still be proud and if it happens again, I’d do the same.” Marmarinos and Pideris hope to be fishing again by early next month.

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I think that’s the clearest picture of what has happened to Arctic sea ice that I’ve seen.

NASA – 30 Years Of Before And After Images Around The World (F.)

The Arctic’s sea ice has been in decline for decades as pictured above comparing September 1984 to September 2016. The total area of persistent (4 years or older) ice has declined from 718,000 square miles to 42,000 square miles in the time period above. In the above images blue/grey ice is younger whereas white ice is older.

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 November 23, 2016  Posted by at 9:45 am Finance Tagged with: , , , , , , , , , ,  2 Responses »


Cyclone, Oklahoma, 1898

Dow 19,000 Is No Cause For Celebration (MW)
Global Wealth Update: 0.7% Of Adults Control $116.6 Trillion In Wealth (ZH)
We Could Be In A ‘Lost Decade’ Of Global Wealth Growth (CNBC)
Willing To Oppose Trump, Some Senate Republicans Gain Leverage (R.)
EU Draft Plan Eyes New Bank Creditor Class To Bear Losses (R.)
Economists Need To Get Into The Real World, Says BOE’s Haldane (Tel.)
Of Dunces, Fools, Drones and Heroes (Dmitry Orlov)
Renzi’s Party Wants Early Election in Italy If Referendum Lost (BBG)
Erdogan Says EU Lawmakers’ Vote On Turkish Membership ‘Has No Value’ (R.)
EU Finance Ministers To Discuss IMF, Greek Debt (Kath.)
Trump: ‘Open Mind’ On Quitting Climate Accords (AFP)
Sea Ice Reaches A New Low (Economist)

 

 

Arbitrary numbers.

Dow 19,000 Is No Cause For Celebration (MW)

The Dow Jones Industrial Average closed above 19,000 on Tuesday for the first time. How is this news? I’m sure you remember the spell-binding chase for the Dow to break 18,000, or those thrilling days when the Dow crossed 17,000, or hunted for 15,000. If you don’t remember those benchmark days – which occurred in December 2014 and July 2014 respectively, the latter being 14 months after the Dow had crossed 15,000 – then you also recognize that Dow 19,000 is equally no big deal, post-election rally notwithstanding. In fact, the Dow itself is no big deal. The Dow is the Kardashian of indexes – a celebrity benchmark, famous because it’s known rather than because of what it does.

Every round number on the index hits the news cycle hard, largely because there is so little real news out there. In early November, for example, people were talking about nine straight down days on the S&P 500 – the first nine-day losing streak in 36 years – as if that was somehow meaningful, even though the total decline on the index amounted to just 3.1%. (By comparison, the S&P 500’s last nine-day skid – which ended in December 1980 – shaved 9.4% off the index, according to FactSet). Tuesday’s headlines included a 13-day winning streak for the Russell 2000, its longest win streak in more than 20 years. The Russell benchmark gained roughly 15% during that stretch – an achievement largely unnoticed because it wasn’t the Dow or S&P 500.

Round numbers and little factoids are amusing and interesting, and are obvious fodder for the talking heads. Currently, the talk is whether the post-election rally can continue and if the Dow can roar on to 20,000, or if the quick rebound since the election has pushed us closer to a point of go-no-further. Focusing on the meaning of the Dow passing a landmark, however, misses the bigger point, which is that the Dow is a virtually meaningless benchmark. The Dow is important to people because it’s what they know, the staple of every market-oriented website, every radio-station market update, every newspaper’s daily business section, and the centerpiece of the 20 seconds of coverage that every national newscast guarantees the investing world each day.

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Criminal. And deadly. The ultimate pyramid scheme.

Global Wealth Update: 0.7% Of Adults Control $116.6 Trillion In Wealth (ZH)

Today Credit Suisse released its latest annual global wealth report, which traditionally lays out what is perhaps the biggest reason for the recent “anti-establishment” revulsion: an unprecedented concentration of wealth among a handful of people, as shown in its infamous global wealth pyramid, an arrangement which as observed by the “shocking” political backlash of the past few months suggests that the lower ‘levels’ of the pyramid are increasingly unhappy about.

As Credit Suisse tantalizingly shows year after year, the number of people who control just shy of a majority of global net worth, or 45.6% of the roughly $255 trillion in household wealth, is declining progressively relative to the total population of the world, and in 2016 the number of people who are worth more than $1 million was just 33 million, roughly 0.7% of the world’s population of adults. On the other end of the pyramid, some 3.5 billion adults had a net worth of less than $10,000, accounting for just about $6 trillion in household wealth. And inbetween is the so-called global middle class – those 1 billion people who rising anger at the status quo made Brexit and Trump possible.

[..] How about the very top? Things here are even more nuanced, with 28.9 million people whose net worth is between $1 and $5 million gradually tapering off to just 140,900 Ultra High Net Worth individuals who control more than $50 million in assets each. Of these, 50,800 are worth at least USD 100 million, and 5,200 have assets above USD 500 million. The total number of UHNW adults is about 3% higher than a year ago (4,100 individuals), and the increase has been relatively uniform across regions, except for the higher than average rise in Asia- Pacific countries (10%)

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How about a lost century?

We Could Be In A ‘Lost Decade’ Of Global Wealth Growth (CNBC)

Concerns that we are in a “lost decade” for global wealth growth have been given further credence by the latest “Global Wealth Report” released by the Credit Suisse Research Institute on Tuesday. According to the researchers, “In recent years, there has been a growing sense that the economic recovery is shallow, and has not reached all layers of society. Evidence from our global wealth database supports this view.” “While exchange rate movements sometimes obscure trends, wealth per adult and median wealth have grown well below their potential during the last nine years, compounding fears that we are in the midst of a lost decade for global wealth growth,” the paper continues.

The 1.4% rise in global wealth over the 12 month period to June 30 has only kept in line with population growth, meaning that for the first time since 2008 the wealth per adult measure has remained flat, according to the research. The paper burrows down into country level data which show that exchange rate fluctuations were the biggest drivers of changes in wealth for different nations over the period. Most notably, the 15% plunge in the British pound driven by Brexit translated to a $1.5 trillion loss for the U.K.. Meanwhile Japan’s 19% jump – which added $3.9 trillion to its wealth pile – was exactly aligned with gains in the yen as the Japanese currency bounced back from earlier weakness as its central bank was increasingly seen as running out of tools with which to force its depreciation.

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Trump will listen. But these folks must recognize why he won and they did not: they can’t command the room like he can.

Willing To Oppose Trump, Some Senate Republicans Gain Leverage (R.)

It is no surprise that Democrats in the U.S. Congress will oppose Donald Trump but the most important resistance to fulfilling the president-elect’s agenda is beginning to emerge from Republicans on Capitol Hill. A small number of influential Republicans in the Senate are threatening to block appointments to Trump’s administration, derail his thaw with Russia and prevent the planned wall on the border with Mexico. The party held onto control of the Senate at the Nov. 8 election but by only a thin margin, putting powerful swing votes in just a few hands. That empowers Republican Senate mavericks such as Rand Paul of Kentucky and Ted Cruz of Texas. Both were bitter rivals to Trump in the 2016 Republican presidential primary.

Paul, a libertarian lone wolf, says he will block Senate confirmations if Trump nominates either former New York Mayor Rudy Giuliani or former U.N. Ambassador John Bolton to be secretary of state. South Carolina’s Lindsay Graham has started publicly outlining places he might be willing to oppose Trump. He is against the Mexican border wall and is delivering warnings against Trump’s intention to revoke legal status for undocumented immigrants brought here as children – although that would not require congressional approval. Graham, a traditional Republican foreign policy hawk, strongly disagrees with Trump’s attempt to improve ties with Russia. “I am going to be kind of a hard ass” on Russia, Graham told reporters recently. “We can’t sit on the sidelines” and let cyber attacks blamed on Russia “go unanswered.”

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Accounting tricks are supposed to keep zombies alive.

EU Draft Plan Eyes New Bank Creditor Class To Bear Losses (R.)

European banks would be able to issue a new category of debt that could be wiped out in a crisis only after shares and bonds, but before more secured instruments, such as covered deposits, under a draft EU law seen by Reuters on Tuesday. The proposal aims at facilitating the building up of capital buffers for banks against losses at time when shares and bonds are losing value, forcing lenders to pay more to build the required cushions. The draft law, to be published by the European Commission on Wednesday, would create a new category of “non-preferred” debt instruments that would be bailed-in -suffer losses- only during a bank resolution, the draft text said.

The document is part of a wider legislative package aimed at reviewing EU rules on capital requirements for banks. Only debt instruments with a maturity of one year, and that are not derivatives, can be included in the new class. Lenders issuing such instruments will have to stress in contracts their ranking, which will be lower than secured debt such as covered deposits, derivatives or tax liabilities. The law is also aimed at creating a uniform ranking of bail-in-able liabilities across EU countries, which have so far applied in divergent ways new bail-in rules in force since the beginning of this year. The bail-in regime is meant to reduce costs to taxpayers in the event of a bank crisis, while increasing losses for the lenders’ creditors.

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The field is still very slow to wake up, even if more of them raise their -timid- voices.

Economists Need To Get Into The Real World, Says BOE’s Haldane (Tel.)

Economists are too detached from the real world and have failed to learn from the financial crisis, insisting on using mathematical models which do not reflect reality, according to the Bank of England’s chief economist Andy Haldane. The public has lost faith in economists since the credit crunch, he said, but the profession has failed to thoroughly re-examine its failings to come up with a new model of operating. Instead, he fears, it is still using the same failed analyses, and is still failing to speak effectively to the public. This applies to an all manner of areas, from studies of the financial meltdown to analysis of the Brexit vote. “The various reports into the economic costs of the UK leaving the EU most likely fell at the same hurdle. They are written, in the main, by the elite for the elite,” said Mr Haldane, writing the foreword to a new book, called ‘The Econocracy: the perils of leaving economics to the experts’.

The chief economist said that the Great Depression of the 1930s resulted in a major overhaul of economic thinking, led by John Maynard Keynes, who emerged “as the most influential economist of the twentieth century”. But the recent financial crisis and slow recovery has not yet prompted this great re-thinking. “Thus far at least, the present crisis has yet to spawn a Keynes for the twenty-first century. And nor have we witnessed any great leap forward analytically. Perhaps it is simply early days,” he said. “Salvation for the economics profession probably lies not among existing academic and policymaking dinosaurs, like me, but among the new generation of students of the discipline.” For now, economists need to focus on reviewing their models, accepting a diversify of thought rather than one solid orthodoxy, and on communicating more clearly.

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A bit hard to convey what Dmitry means in a news overview, you’ll have to read the article.

Of Dunces, Fools, Drones and Heroes (Dmitry Orlov)

Some time ago I posted three T-shirt designs, with no explanation as to why. “Here are some shirts,” I wrote, “reasonably priced, in all styles and colors, free shipping on orders over 100 USD, yadda-yadda.” Just as I expected, a few people got it, and a few of those ordered some shirts. The rest had no idea; some even confessed to that in the comments. That was a test. It was a success. Now that all eight of the planned designs are available, I offer the full explanation and rationale behind this, my latest humanitarian intervention/fundraising effort.

In all my travels and conversations, I have proven to myself beyond all doubt that the decision on who to talk to should have nothing to do with race, age, class, gender, ethnicity, nationality, IQ, profession/trade, educational level, criminal record, party affiliation, gang/militia membership, religious persuasion, military training/rank, drinking/drug habits and whatever else you might try to use to categorize people. Categorizing people based on their public attributes just doesn’t work. So, in determining who is worth talking to, all we have to go on is gut feeling, first impressions and happy accidents. But is this, I ask you, in any way optimal? No, it is not!

That is why I decided to step in and help. The eight designs may have some artistic merit, but they are not exactly art; in fact, they should be regarded as precision mental calibration instruments. Each design features a simple nautical motif consisting of a circle and the 16 compass points. Around the circle is a tag line. Inside the circle is a fish. The tag line is a pun about the fish. Confused? Read on! Each of the designs is a cognitive test. As you walk around wearing one of these shirts, looking for people worth talking to, you can apply specific methods, explained below, to interpret the way they react to your shirt. You can then make an objective determination as to whether a particular person is worth talking to. The determination is based on that staple of business consultants, Four-Quadrant Analysis.

In this case, the two dimensions being mapped are:
x-axis: Did the person get it? (No | Yes)
y-axis: Did the person laugh? (No | Yes)

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Yeah, bring in the old guard. The return of Monti. That’ll work miracles.

Renzi’s Party Wants Early Election in Italy If Referendum Lost (BBG)

Prime Minister Matteo Renzi’s party would seek early elections in Italy by the summer of 2017 if he loses a referendum on constitutional reform, according to a senior official. Lorenzo Guerini, deputy-secretary of Renzi’s Democratic Party, said in an interview that the group would try to reform the electoral system and then push for a fresh ballot if the “No” campaign wins on Dec. 4. He declined to say whether the premier would stay on to lead that effort or honor his promise to resign after a defeat, but he insisted Renzi would remain leader of the biggest party in parliament. “If there is the political will, we can work over a brief period on a new electoral law, and have elections with a new electoral law soon, by the summer of 2017,” Guerini said in his Rome office.

“If there are not the political conditions and the electoral reform is used as an excuse for a weak government surviving, we’re not interested.” Both the euro and Italian bonds have fallen this month amid concern that a rising populist mood will derail Renzi’s plans for reform and put another crack in the European project. The insurgent Five Star Movement is aiming to capitalize on a “No” vote to force Renzi out and wants another referendum, this time on Italy’s membership of the euro area. With Five Star just behind the Democratic Party in the polls, part of the Italian establishment is looking to hold off another vote until the current parliamentary term ends in February 2018.

Mario Monti, who headed a technocratic government between 2011 and 2013, said he expected there to be no early ballot whatever happens and said Italy should prioritize stability rather than rushing into another vote. “In case the ‘No’ were to win, I would expect first of all Mr Renzi to stay on after all,” Monti said Tuesday in an interview with Bloomberg Television’s Francine Lacqua. “If he at all costs wanted to leave, I would expect the president of the republic to form a new government with a new prime minister, but very much from the same center-left political spectrum which is now the Renzi majority.”

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I’m waiting till Putin takes revenge for the Russian jet downed last year. The West is too weak to take on Erdogan.

Erdogan Says EU Lawmakers’ Vote On Turkish Membership ‘Has No Value’ (R.)

Turkish President Tayyip Erdogan said on Wednesday that a vote by the European Parliament on whether to halt EU membership talks with Ankara “has no value in our eyes” and again accused Europe of siding with terrorist organizations. “We have made clear time and time again that we take care of European values more than many EU countries, but we could not see concrete support from Western friends … None of the promises were kept,” he told an Organisation of Islamic Cooperation (OIC) conference in Istanbul. “There will be a meeting at the European Parliament tomorrow, and they will vote on EU talks with Turkey … whatever the result, this vote has no value in our eyes.”

Leading members of the European Parliament on Tuesday called for a halt to EU membership talks with Turkey because of its broad purges in the wake of a failed July coup. More than 125,000 people – including soldiers, academics, judges, journalists and Kurdish leaders – have been detained or dismissed over their alleged backing for the putsch, in what opponents, rights groups and some Western allies say is an attempt to crush all dissent.

Erdogan said on Tuesday the measures had significantly weakened the network of U.S.-based cleric Fethullah Gulen, whose followers are accused of infiltrating state institutions over several decades and carrying out the coup attempt. Erdogan, and many Turks, were angered by the Western response to the putsch, viewing it as more concerned about the rights of the plotters than the gravity of the events themselves, in which more than 240 people were killed as rogue soldiers commandeered fighter jets and tanks. He has also repeatedly accused Europe of harboring members of the Kurdistan Workers Party (PKK) militant group, which has waged a three-decade insurgency against the Turkish state and is deemed a terrorist organization by the EU and United States.

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Get so sick of this. More reforms will be called for. Rinse and repeat.

EU Finance Ministers To Discuss IMF, Greek Debt (Kath.)

Finance ministers of core European Union countries are expected to meet later this week in Berlin to discuss the possible concessions Brussels could offer to secure the participation of the IMF in Greece’s third international bailout, paving the way for debt talks. Government officials suggest that the IMF, which has yet to decide whether to join Greece’s third bailout, is to blame for the slow process of talks between Greece and its creditors. In a media briefing on Tuesday, government spokesman Dimitris Tzanakopoulos acknowledged that the differences between Greece and its creditors remain too great for an agreement on all prior actions to be reached by the December 5 Eurogroup meeting and said that Athens was aiming for a political agreement by that time.

There is enough time until December 5 for agreements to be reached in talks on labor laws, fiscal issues and the overhaul of the Greek energy sector, Tzanakopoulos said, noting that the government has shown the political will necessary to achieve a breakthrough by the deadline. However, he said, this political will does not include “a willingness for new austerity measures and concessions on matters of principle such as labor rights.” Elaborating, government sources said authorities will not retract their demands for the restoration of collective labor contracts. If all differences have not been bridged by December 5, Greece’s creditors should issue a political decision and make good on their pledge to launch talks on debt relief, Tzanakopoulos said.

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Denouncing the CON21 accord is not the worst of things. Because it doesn’t achieve a thing.

Trump: ‘Open Mind’ On Quitting Climate Accords (AFP)

US President-elect Donald Trump said Tuesday he has an open mind about pulling out of world climate accords and admitted global warming may be in some way linked to human activity. “I think there is some connectivity. Some, something. It depends on how much,” he told a panel of New York Times journalists. Asked whether he would make good on his threat to pull the United States out of UN climate accords, he said: “I’m looking at it very closely. I have an open mind to it.” But he said he was also wanted to see how much the Paris climate accord “will cost our companies” and its impact on US competitiveness.

The Republican billionaire businessman has called climate change a “hoax” perpetrated by China and threatened to pull out of the agreement on limiting greenhouse gas emissions. The accord was reached in Paris in December 2015 after negotiations involving 195 countries. The worldwide pact to battle global warming took effect on November 4. The agreement sets a goal of limiting the rise in global temperatures to two degrees Celsius (3.6 degrees Fahrenheit) over pre-industrial revolution levels. The United States, the second biggest emitter of greenhouse gases after China, ratified the accord in early September, with strong backing from President Barack Obama.

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What are you going to do about it?

Sea Ice Reaches A New Low (Economist)

Measuring sea ice is difficult. Not only does it only appear in the most remote, inhospitable parts of the world, it is constantly either melting or forming. Since 1979, satellites have made the job easier, but they can give a misleading picture. Using satellite images to tot up the total area of sea ice risks mistaking surface melt for open water during the summer melting season. Scientists at the National Snow and Ice Data Center (NSIDC) in Colorado instead measure sea-ice extent by dividing the images into grids and counting any squares with more than 15% ice concentration as “ice covered”. Sea-ice extent is always larger than sea-ice area, but this method eliminates melt-season inaccuracies.

Scientists are interested in sea ice as a marker -and amplifier- of climate change. Its bright surface reflects 80% of the sunlight that hits it back into space. When it melts, the uncovered dark ocean surface absorbs 90% of the sunlight, which heats it up, causing more ice to melt. In recent years, the melting season in the Arctic has been ending later in the year, leading to less time for new ice to form. As a consequence, the total sea-ice extent in September 2016 was over 3m km2. smaller than in September 1980, although not as small as in September 2012, the worst year on record.

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Dec 192015
 
 December 19, 2015  Posted by at 9:46 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle December 19 2015


John Vachon Auto of migrant fruit worker at gas station, Sturgeon Bay, Wisconsin Jul 1940

Rate Rally Fizzles as Dow Loses 621 Points in 2 Days (WSJ)
Explaining Today’s “Massive Stop Loss” Quad-Witching Market Waterfall (ZH)
Hedge Funds Cut Fees To Stem Client Exodus (FT)
History of Junk Bond Meltdowns Points to Trouble (BBG)
IEA Sees ‘Peak Coal’ As Demand For Fossil Fuel Crumbles In China (AEP)
Congress Slips Controversial CISA Law In With Sure-To-Pass Budget Bill (Wired)
US-Mexico Border: Arizona’s Open Door (FT)
Bundesbank’s Weidmann: Greek Debt Relief Is Not Urgent (Kath.)
Iceland Bank Collapse Nears End as Creditors Reach Last Accord (BBG)
Ukraine Debt Default and EU Sanctions Extension Anger Russia (IT)
Merkel Defends Russian Gas Pipeline Plan (WSJ)
The Unraveling Of The European Union Has Begun (MarketWatch)
‘Cameron’s Battle Against EU Is Like Grappling With A Jellyfish’ (RT)
‘Cancer of Europe’ – Russian Duma Speaker Calls For NATO Dissolution (RT)
135 Jobs In 2.5 Years: The Plight Of Spain’s New Working Poor (Guardian)
One Of Every 122 Humans Today Has Been Forced To Flee Their Home (WaPo)

The Dow doesn’t often lose over 2% in a day. “..on pace for its first negative year since 2008.”

Rate Rally Fizzles as Dow Loses 621 Points in 2 Days (WSJ)

In the two days after the Federal Reserve gave investors exactly what they expected, the Dow Jones Industrial Average posted its steepest loss since a late-August plunge. The back-to-back selloff erased 621 points from the blue chips—sending the Dow to its lowest level in two months and wiping out a three-session winning streak logged around the Fed’s liftoff for interest rates. The fizzled rally underscores the difficult backdrop across markets as investors prepare to close out what is shaping up to be worst year for U.S. stocks since the financial crisis. Investors are going into the holidays with grim news from the energy and mining sectors, uncertainty about the stability of markets for low-rated debt and worries about slowing economies overseas.

Meanwhile, public companies have struggled to post higher profits, and investors remain wary of buying stocks that look expensive compared with historical averages. “When you buy a share of stock you’re paying for a piece of future cash flows,” said David Lebovitz, global market strategist, at J.P. Morgan Asset Management, which has about $1.7 trillion under management. “If those cash flows aren’t materializing, it doesn’t make sense.” Investors had taken heart from stronger jobs data and the Fed’s signal that the U.S. economy is strong enough to begin returning rates to a more normal level. But optimism took a back seat at the end of the week. The Dow fell 367.29, or 2.1%, to 17128.55 on Friday, leaving it with a loss of 0.8% for the week. The index is down 3.9% so far in 2015, on pace for its first negative year since 2008.

The S&P 500 fell 1.8% to 2005.55. It ended the week down 2.6% for 2015, on track for first yearly decline since 2011 and its biggest fall since 2008. Both indexes had rallied broadly over the past six years, in part fueled by record-low interest rates. Weaker stocks and crude oil prices Friday added to demand for safe havens, sending investors into Treasurys. The yield on the benchmark 10-year Treasury note fell to 2.197% late Friday from 2.236% Thursday, as investors bid up the price. Yields on the note now aren’t much above where they started the year. “Shorting Treasury bonds which are a safe haven beneficiary when the economic and geopolitical risks are rising is foolhardy,’’ said Jonathan Lewis at Samson Capital Advisors.

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They kept the S&P500 neatly just above 2000, for a reason.

Explaining Today’s “Massive Stop Loss” Quad-Witching Market Waterfall (ZH)

One week ago, and again last night, we previewed today’s main event: an immensely important quad-witching expiration, the year’s last, one which as JPM’s head quant calculated will be the “largest option expiry in many years. There are $1.1 trillion of S&P 500 options expiring on Friday morning. $670Bn of these are puts, of which $215Bn are struck relatively close below the market level, between 1900 and 2050.” What is most important, is that the “pin risk”, or price toward which underlying prices may gravitate if HFTs are unleashed to trigger option stop hunts, is well below current S&P levels: as JPM notes, “clients are net long these puts and will likely hold onto them through the event and until expiry. At the time of the Fed announcement, these put options will essentially look like a massive stop loss order under the market.”

What does this mean? Considering that the bulk of the puts have been layered by the program traders themselves, including CTA trend-followers and various momentum strategist (which work in up markets as well as down), and since the vol surface of today’s market is well-known to everyone in advance, there is a very high probability the implied “stop loss” level will be triggered. Not helping matters will be the dramatic lack of market depth (thank you HFTs and regulators) and overall lack of liquidity, which means even small orders can snowball into dramatic market moves. “While equity volumes look robust, market depth has declined by more than 60% over the last 2 years. With market depth so low, the market does not have capacity to absorb large shocks. This was best illustrated during the August 24th crash.”

[..] the problem is that since over the past 7 years, the entire market has become one giant stop hunt, the very algos which “provide liquidity” will do everything they can to inflict the biggest pain possible to option holders – recall that for every put (or call) buyer, there is also a seller. As such, illiquid markets plus algo liquidity providers makes for an explosive cocktail at a time when the Fed is already worried whether the Fed may have engaged in “policy error.” So what does this mean in simple English? As Reuters again points out, levels to watch are the large imbalances in favor of puts in Dec SPX put contracts at 2050, 2000, 1950, 1900 strikes It further writes that “as SPX moves below these levels market makers who are short these puts would be forced to sell spot futures to hedge, which could exacerbate a market selloff.” In other words, selling which begets even more selling, which begets even more selling.

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They might as well close then.

Hedge Funds Cut Fees To Stem Client Exodus (FT)

Many hedge funds are cutting fees and negotiating with investors to trim some of their hefty costs and avert withdrawals after another mediocre year for returns. The industry has been shifting for several years away from its traditional model of charging 2% of assets and keeping 20% of profit. Some funds are already wooing customers with fees closer to 1% and 15%, people in the industry say. Now pressures are mounting on a wider range of fund managers, as a crowded sector copes with a middling year. The HFRI Fund Weighted Composite index is up 0.3% on the year and returned just under 3% in 2014, according to Hedge Fund Research. Management fees declined this year in every strategy except event driven, falling to a mean of 1.61% from 1.69%, according to JPMorgan’s Capital Introduction Group.

For performance fees, some strategies were impacted more than others, with the biggest declines in global macro, multi-strategy, commodity trading advisers and relative value. When Sir Chris Hohn founded The Children’s Investment Fund about a decade ago, he was an outlier. His $10bn fund charges management fees as low as 1%, depending on how long investors lock up their money. He recently referred to himself as “the antithesis of the classic hedge fund,” because he waived performance fees until the fund crossed a set return hurdle for the year. But others are following his lead in an effort to attract and retain clients amid tough competition.

There are now more than 10,000 hedge funds compared with 610 in 1990, HFR data show, and there are increasing benefits for the larger operators, including lower prime broker costs and better access to company management for research. The client base has also moved away from wealthy individuals, who were happy to take on significant risk in exchange for high returns. Now funds depend on institutional investors such as insurers and pension schemes, who cannot afford to miss minimum return targets and are themselves under pressure from boards that oversee investments. “Most [fund] managers prefer to haggle like rug-salesmen at a bazaar; institutional investors would rather shop at Ikea,” says Simon Ruddick, founder of consultant Albourne.

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Nothing new, but nothing learned either.

History of Junk Bond Meltdowns Points to Trouble (BBG)

The rout in junk bonds is intensifying and there’s blood in the water. After claiming some high-profile casualties – notably Third Avenue Management – the turmoil is raising fears of a larger meltdown in the markets, perhaps even a recession. In other words, is high-yield debt the canary in the credit mine? Academic work on the subject suggests that the difference in the rates for high-risk debt and rock-solid government securities – the so-called risk premium, or high-yield spread – often is a significant harbinger. A paper published in the Oxford Review of Economic Policy in 1999 concluded that the high-yield spread “outperforms other leading financial indicators,” such as the term spread and the federal funds rate. An International Monetary Fund staff paper published in 2003 offered a similar assessment, but added that “abnormally high levels of the high-yield spread have significant short-term predictive power.”

The trouble with these findings is that the pool of data is focused on very recent financial history, which makes it harder to draw broad conclusions. This limitation reflects the conventional wisdom that junk bonds are a recent invention cooked up by the likes of Michael Milken and company, and as a consequence, there are no comparable data sets before the late 1980s. But several economists at Rutgers – Peter Basile, John Landon-Lane and Hugh Rockoff – recently disputed that conclusion in an intriguing working paper that resurrected neglected data on high-yield securities from 1910 to 1955. These forerunners of today’s junk bonds initially merited Aaa or Baa ratings, but lost their appeal once they were downgraded to Ba or worse. Such speculative-grade bonds constituted, on average, approximately a quarter of the total book value of outstanding bonds before the end of World War II.

The authors of the study argue that although other kinds of spreads also have predictive power, “junk bonds may be a more sensitive indicator, perhaps a more sensitive leading indicator, of economic conditions than higher-grade bonds.” While their research opens all sorts of avenues for academic exploration – Was there a decline in lending standards in the late 1920s? Was there a liquidity trap in the late 1930s? – the most intriguing question it raises is about the predictive power of the spread between high-yield and high-quality debt. In theory, this power to predict turning points in the business cycle could manifest in two ways. The first would be a narrowing of the spread, which would mean that investors recognized the worst was over, a trough was imminent and a rebound was in offing. The second would be a spike in the spread, which means that investors anticipated that the economy had peaked and that a contraction was in the offing.

The authors found that a narrowing of the high-yield spread predicted a mere three of 10 troughs. But spikes were another matter: Exceptional bumps in the high-yield spread accurately predicted eight of 10 peaks (and the subsequent declines, most notably the downturn that began in August 1929 and turned into the Great Depression, as well as the recession that began in 1937 after the Fed prematurely hiked rates). It may be too early to read too much into these findings. But when combined with the research on the predictive capacity of the high-yield spread from the 1980s onward, this recent work suggests that the spread is a leading indicator worth watching.

And given the recent spike, something far worse than a junk bond meltdown may be brewing. How bad? In the three months before August 1929, the high-yield spread spiked by 47 basis points, and in the three months before May 1937, it shot up 85 basis points. In the past six weeks of 2015, it has spiked by about 120 basis points. That doesn’t mean we’re headed for disaster: There’s still an apples-and-oranges quality to comparisons of the two eras, despite the best efforts to create a commensurate set of data. But if the spread continues to widen, another downturn – or worse – could be ahead.

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Ambrose is blind: “Crucially, the switch is happening because the country is moving up the technology ladder and switching to a new growth model. ” No, coal use is tumbling because the Chinese economy is.

IEA Sees ‘Peak Coal’ As Demand For Fossil Fuel Crumbles In China (AEP)

China’s coal consumption has been falling for two years and may never recover as the moment of “peak coal” draws closer, the International Energy Agency (IEA) has said. The energy watchdog has slashed its 2020 forecast for global coal demand by 500m tonnes, warning that the industry risks unstoppable decline as renewable technologies and tougher climate laws shatter previous assumptions. In poignant symbolism, the peak coal report came as miners worked their final shift at Britain’s last surviving deep coal mine at Kellingley in North Yorkshire, closing the chapter on the British industrial revolution. Mines around the world are at increasing risk as prices slump to 12-year lows of $38 a tonne, and the super-cycle gives way to a pervasive glut. The IEA said the $40bn Galilee Basin project in Australia may never become operational.

There is simply not enough demand, even for cheap, open-cast coal. “The golden age of coal seems to be over,” said the IEA’s medium-term market report. “Given the dramatic fall in the cost of solar and wind generation and the stronger climate policies that are anticipated, the question is whether coal prices will ever recover.” “The coal industry is facing huge pressures, and the main reason is China,” said Fatih Birol, the agency’s director. The IEA reported that China’s coal demand fell by 2.9pc in 2014 and the slide has accelerated this year as the steel and cement bubble bursts. The country produced more cement between 2011 and 2013 than the US in the entire 20th century, according to one study. This will never happen again. Crucially, the switch is happening because the country is moving up the technology ladder and switching to a new growth model.

The link between electricity use and economic growth has completely broken down. The “energy intensity” of GDP fell by 4pc in 2014. Mr Birol said China’s coal consumption is likely to flatten out until 2020 before declining, but the definitive tipping point could happen much faster if president Xi Jinping carries out his economic reform drive with real vigour. Coal demand will drop by 9.8pc under the agency’s “peak coal scenario”. The shift is dramatic. China’s coal demand has tripled since 2000 to 3.920m tonnes – half of global consumption – and the big mining companies had assumed that it would continue. The market is now badly out of kilter. Rising demand from India under its electrification drive will not be enough to soak up excess supply or replace the lost demand from China.

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“They’ve got this bill that’s kicked around for years and had been too controversial to pass, so they’ve seen an opportunity to push it through without debate. And they’re taking that opportunity.”

Congress Slips Controversial CISA Law In With Sure-To-Pass Budget Bill (Wired)

Update 12/18/2015 12pm: The House and Senate have now passed the omnibus bill, including the new version of CISA.

Privacy advocates were aghast in October when the Senate passed the Cybersecurity Information Sharing Act by a vote of 74 to 21, leaving intact portions of the law they say make it more amenable to surveillance than actual security. Now, as CISA gets closer to the President’s desk, those privacy critics argue that Congress has quietly stripped out even more of its remaining privacy protections. In a late-night session of Congress, House Speaker Paul Ryan announced a new version of the “omnibus” bill, a massive piece of legislation that deals with much of the federal government’s funding. It now includes a version of CISA as well. Lumping CISA in with the omnibus bill further reduces any chance for debate over its surveillance-friendly provisions, or a White House veto.

And the latest version actually chips away even further at the remaining personal information protections that privacy advocates had fought for in the version of the bill that passed the Senate. “They took a bad bill, and they made it worse,” says Robyn Greene, policy counsel for the Open Technology Institute. CISA had alarmed the privacy community by giving companies the ability to share cybersecurity information with federal agencies, including the NSA, “notwithstanding any other provision of law.” That means CISA’s information-sharing channel, ostensibly created for responding quickly to hacks and breaches, could also provide a loophole in privacy laws that enabled intelligence and law enforcement surveillance without a warrant. The latest version of the bill appended to the omnibus legislation seems to exacerbate that problem.

It creates the ability for the president to set up “portals” for agencies like the FBI and the Office of the Director of National Intelligence, so that companies hand information directly to law enforcement and intelligence agencies instead of to the Department of Homeland Security. And it also changes when information shared for cybersecurity reasons can be used for law enforcement investigations. The earlier bill had only allowed that backchannel use of the data for law enforcement in cases of “imminent threats,” while the new bill requires just a “specific threat,” potentially allowing the search of the data for any specific terms regardless of timeliness. [..] Even in its earlier version, CISA had drawn the opposition of tech firms including Apple, Twitter, and Reddit, as well as the Business Software Alliance and the Computer and Communications Industry Association.

In April, a coalition of 55 civil liberties groups and security experts signed onto an open letter opposing it. In July, the Department of Homeland Security itself warned that the bill could overwhelm the agency with data of “dubious value” at the same time as it “sweep[s] away privacy protections.” That Senate CISA bill was already likely on its way to become law. The White House expressed its support for the bill in August, despite its threat to veto similar legislation in the past. But the inclusion of CISA in the omnibus package may make it even more likely to be signed into law in its current form. Any “nay” vote in the house—or President Obama’s veto—would also threaten the entire budget of the federal government. “They’re kind of pulling a Patriot Act,” says OTI’s Greene. “They’ve got this bill that’s kicked around for years and had been too controversial to pass, so they’ve seen an opportunity to push it through without debate. And they’re taking that opportunity.”

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Reality vs hubris.

US-Mexico Border: Arizona’s Open Door (FT)

Many people in the US today look towards the country’s border with Mexico and tremble. So great are the fears about illegal immigration and the possible infiltration of terrorists that Donald Trump has vaulted to the top of the Republican presidential field by vowing to build a wall between the two countries and make the Mexicans pay for it. So it may come as a surprise to learn about the economic ideas now emerging from Arizona, a solid red state — having voted Republican in 15 of the past 16 presidential elections – that sits cheek by jowl with the Mexican state of Sonora. Arizonan movers and shakers have started to think that bringing in more Mexicans is a good way to stimulate growth.

To make people from south of the border feel more welcome, county planning organisations, municipal officials and business leaders are lining up behind a proposal to transform their entire state into a “free-travel zone” for millions of better-off Mexicans with the money and wherewithal to qualify for a travel document that is widely used in the south-west, but little known elsewhere – a border-crossing card, or BCC. “Fear gets you nowhere. Chances get you somewhere,” says Dennis Smith, executive director of the Maricopa Association of Governments, planning body for the county that includes Phoenix, Arizona’s capital and biggest city. “What do we have to lose? Nothing.” BCC holders are currently allowed to go 75 miles into Arizona, which takes them as far as Tucson, the state’s second-largest city.

But Arizona officials are seeking a change in federal rules that would allow these people to roam across the state, hoping that if the visitors travel further, they will stay longer and spend more money at malls, restaurants and tourist attractions. The desired Mexicans are a far cry from the “murderers” and “rapists” of Mr Trump’s stump speeches. They can afford the $160 fee and offer the proof of employment and family ties back home that are required for a BCC, which is good for 10 years and enables Mexicans to remain in the US for up to 30 days at a time. To stay longer or travel further, they need more documentation. However, Arizona’s charm offensive illustrates the complexity of border politics as the 2016 presidential election approaches. In the US imagination, Mexico looms as both a menace and a market. People want to keep some kinds of Mexicans out — and encourage others to come in.

The impulses are often contradictory. For now, the emphasis in Arizona is shifting toward accommodation. Local planners speak excitedly of integrating the economies of Arizona and Sonora into an “Ari-Son” mega-region, in which cross-border trade will increase and more Mexicans will attend pop concerts or sports events in Phoenix, take family car trips to the Grand Canyon and ski in the state’s northern mountains. “This is vitally important to the state’s economic health,” says Glenn Hamer, chief executive of the Arizona Chamber of Commerce and a former executive director of Arizona’s Republican party. “On the business side, it is a great asset for the state to be close to a market that is growing and becoming more prosperous every single day.”

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Yes, it is.

Bundesbank’s Weidmann: Greek Debt Relief Is Not Urgent (Kath.)

Greece faces relatively low debt servicing needs in the coming years and further debt relief is not a matter of urgency, Greek financial daily Naftemporiki quoted ECB Governing Council member Jens Weidmann as saying on Thursday. “In 2014 interest payments as a percentage of GDP were lower in Greece than in Spain, Portugal and Italy,” Weidmann, head of Germany’s central bank, told the paper. “Taking into account the low refinancing needs for the next years, further debt relief does not seem to be an issue of particularly urgent interest.” Athens has been struggling to legislate reforms agreed with its eurozone partners in exchange for an €86 billion bailout, the third financial aid package to keep it afloat since its debt crisis exploded in 2010.

The government, however, wants some form of debt relief to allow for future growth. Weidmann said the most important task at hand was the full implementation of the agreed economic adjustment program of reforms. “This will not simply increase the ability to grow but also dissolve prevailing uncertainty which acts as a brake for investments,” he told the paper. Weidmann added it was up to the Greek government to decide when to lift capital controls it imposed in late June to stem a flight of deposits.

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And this is what can happen when you don’t have the EU to bully you.

Iceland Bank Collapse Nears End as Creditors Reach Last Accord (BBG)

A seven-year standoff between Iceland and the international creditors of its failed banks is nearing an end after a court approved the last remaining settlement. The agreement signed by the caretakers of LBI hf paves the way for creditor payments from the bank’s 455.6 billion kronur ($3.5 billion) estate. It follows similar deals involving Glitnir Bank hf and Kaupthing Bank hf. The three banks hold combined assets of $17.6 billion, according to their latest financial statements. The banks failed within weeks of each other in 2008 under the weight of $85 billion in debt. Iceland then resorted to capital controls to prevent a total collapse of its $15 billion economy. International creditors, among them the Davidson Kempner Capital Management, Quantum Partners and Taconic Capital Advisors hedge funds, have been unable to access the lenders’ assets.

Glitnir’s administrators said they planned to make the first payments to creditors on Friday. Theodor S. Sigurbergsson, a member of Kaupthing’s winding up committee, said in an interview this week that he expects “to start payments to creditors early next year.”
In June, the government offered creditors in Glitnir, Kaupthing and LBI the option of either paying a 39% exit tax on all their assets or making what it calls a stability contribution of as much as 500 billion kronur by the end of the year. To be eligible for the offer, creditors needed to complete settlements by Dec. 31. Parliament later extended that deadline to March 15. The island’s handling of the financial crisis has won praise from Nobel laureates and the IMF. The krona has strengthened about 8% this year and Iceland’s economy is now growing at a faster pace than the euro-zone average. With Glitnir having been granted an exemption from capital controls on Thursday, Iceland is expected to make a full return to the international financial community during the course of 2016.

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It’s a miracle Russia stays so quiet.

Ukraine Debt Default and EU Sanctions Extension Anger Russia (IT)

Ukraine and Russia are on a collision course over major trade and finance disputes, as the European Union prepares to extend sanctions against Moscow for annexing Crimea and fomenting a bloody conflict in eastern Ukraine. Kiev has refused to meet Sunday’s due date on a $3 billion loan that Moscow gave to authorities led by former Ukrainian president Viktor Yanukovich in December 2013, when they were rocked by huge street protests. Moscow has vowed to take Kiev to court over the disputed bond, which comes due just as Russia gets ready to scrap its free-trade zone with Ukraine in response to the planned January 1st launch of a landmark EU-Ukraine trade pact. “The government of Ukraine is imposing a moratorium on payment of the so-called Russian bond,” Ukrainian prime minister Arseniy Yatsenyuk said on Friday.

“I remind you that Ukraine has agreed to restructure its debt obligations with responsible creditors, who accepted the terms of the Ukrainian side. Russia has refused, despite our many efforts to sign a restructuring deal, to accept our offers.” Russian officials have threatened to launch legal action by the end of the year to reclaim the cash from Ukraine. “By announcing a moratorium on returning this sovereign debt, the Ukrainian side has, you could say, in fact admitted default,” said Kremlin press secretary Dmitry Peskov. Russia long argued that the unpaid debt should block future IMF funding for cash-strapped Ukraine, and Moscow was furious with the lender this week for changing its rules to allow aid to keep flowing to countries that are in arrears. The IMF agreed with Moscow, however, that the bond should be treated as sovereign debt, and told Kiev that it must negotiate with Russia “in good faith” to ensure continued access to a $17.5 billion aid package.

Ukraine relies on the IMF, United States and EU to prop up its ailing economy, and depends on the West to maintain diplomatic pressure on Russia. Diplomats say EU states have agreed to extend sanctions on Russia for another six months from Monday, due to its continuing failure to fulfil a deal aimed at ending an 18-month conflict in eastern Ukraine that has killed more than 9,000 people. “It was an expected decision, we heard nothing new, and it will have no effect on the economy of the Russian Federation, ” said Alexei Ulyukaev, Russia’s minister for economic development. Russia’s economy has been damaged by sanctions and above all by the plunge in the price of oil. The Kremlin has ordered the suspension of a free-trade agreement between Russia and Ukraine from January 1st, when a far-reaching trade deal is due to start between Ukraine and the EU.

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Gas is more important than Ukraine.

Merkel Defends Russian Gas Pipeline Plan (WSJ)

German Chancellor Angela Merkel found herself under pressure on Friday from other Europe Union leaders over her government’s support for a natural-gas pipeline from Russia that others fear could further undermine the economic and political stability of Ukraine. The planned expansion of PAO Gazprom’s Nord Stream pipeline, which ships Russian gas via the Baltic Sea to northern Germany, would add an extra 55 billion cubic meters of gas in capacity—about as much as the company currently transports through Ukraine. Officials in Brussels and Washington as well as Kiev have accused Moscow of using the project, dubbed Nord Stream 2, to deprive Ukraine of much of its remaining political leverage as well as much-needed revenues from transit fees. Ukrainian President Petro Poroshenko on Wednesday called Nord Stream 2 his country’s “greatest concern as of today.”

But Ms. Merkel defended the planned pipeline. “I made clear, along with others, that this is a commercial project; there are private investors,” Ms. Merkel said following talks with the other 27 EU leaders. During the discussion on Nord Stream, the chancellor’s position was attacked by Italian Prime Minister Matteo Renzi and Bulgaria’s Boyko Borisov, while she received some backing from Dutch Premier Mark Rutte. Gazprom holds a 50% stake in the Nord Stream 2 consortium. The other 50% are held in equal parts by Shell, Germany’s E.On and BASF, Austria’s OMV and France’s Engie. Despite the involvement of these private investors, several European Union and U.S. officials have questioned the commercial reasoning behind Nord Stream 2, arguing that existing transit routes from Russia, including the first Nord Stream pipeline and the Ukrainian lines aren’t used at full capacity.

In a recent interview, the U.S. special envoy for international energy affairs, Amos Hochstein, called Nord Stream 2 “an entirely politically motivated project” and warned European authorities against “rushing into” the project. Since relations with Moscow cooled over the conflict in eastern Ukraine, the EU has been working to reduce its dependence on Russian gas. Building Nord Stream 2, however, would concentrate 80% of the bloc’s gas imports from Russia onto a single route, according to the EU’s climate and energy commissioner, Miguel Arias Cañete. “In my perspective, Nord Stream does not help diversification nor would it reduce energy dependence,” said European Council President Donald Tusk, who presided over Friday’s discussions among the 28 EU leaders. He said, however, the EU must avoid politicizing this issue and check whether the pipeline would comply with EU rules, which block companies from controlling both a pipeline and its supply.

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“..the mantra of 28 states having the same ultimate objective … is officially dead.”

The Unraveling Of The European Union Has Begun (MarketWatch)

Whatever spin comes out of the Brussels summit this week, the European Union finds itself in the midst of an existential crisis after the bloc’s most challenging year since the launch of economic and monetary union in 1999. National leaders will continue to do what they do best — muddle through in a fog of obfuscation as they fail again to address the fundamental problems that have led to a string of financial, political and foreign policy crises from the Ukraine incursion through the Greek bailout to a flood of refugees. Even as British Prime Minister David Cameron tries to renegotiate his country’s terms of membership to avoid an exit from the EU, recent elections in Poland, France and Portugal reflect a shift in public opinion to question whether European integration on the current model is such a good idea after all.

Spain faces an election Sunday in which the conservative Popular Party, which has toed the Brussels line on austerity, is sure to lose its majority as voters are poised to create a new political landscape with four major parties and big questions about the future of the country. And Cameron himself is wrestling with a growing momentum in Britain favoring an exit from a Brussels regime that seems increasingly onerous or irrelevant. It is, of course, Cameron’s Conservative Party that historically has championed EU membership, and the EU itself is generally touted as a boon for business and the economy. So it is perhaps telling that recent commentary from a London-based think tank that generally mirrors the relatively conservative views of its central-banking and asset-management constituency is taking an increasingly critical view of Europe.

“There is a sense that the Union is drifting towards some form of calamity — the end of free movement of people, or the exit of Greece from the euro, or the departure of Britain from the Union itself,” John Nugée, a former Bank of England official who is a director of the Official Monetary and Financial Institutions Forum in London, wrote this week after meeting with officials in Asia, who have a pessimistic view of Europe’s situation. “The view from Asia is that the Union is struggling because it falls between two extremes of strength and weakness: It has neither a strong democratic regime nor a strong autocratic one,” Nugée writes in an OMFIF commentary. The EU is instead a “weak democracy” in this view. “The authorities have sufficient strength to try to rule without popular consent,” Nugée observes.

“But they are too weak to ignore the negative populist response such action inevitably incites and which, in turn, exacerbates their initial weakness.” The bottom line, according to this analyst, is that Europe’s leaders are simply overwhelmed. “The complexity of each individual issue seems to make the combined difficulties beyond the capacity of the political system to solve,” Nugée writes. In another OMFIF commentary this week, Antonio Armellini, a former Italian diplomat who represented his country in a number of foreign capitals and international organizations, argued that the British request for special terms “obliges everyone to recognize that the mantra of 28 states having the same ultimate objective … is officially dead.”

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“They [EU] have already made these decisions. They are not known for being democratic – [Jean-Claude] Juncker and [Donald] Tusk. There is no democracy in the EU. They pay lip service to democracy, they have decided, what is going to happen. ”

‘Cameron’s Battle Against EU Is Like Grappling With A Jellyfish’ (RT)

It’s unlikely that ‘lame duck PM’ David Cameron, would get any concessions over the UK’s EU membership, but he is still banging his head against that brick wall, says investigative journalist Tony Gosling. EU leaders have gathered in Brussels for a summit to partly determine Britain’s future within the union. Prime Minister David Cameron on Thursday pushed for changes to the terms of the country’s EU membership saying that “there is a pathway to a deal in February.” He also emphasized the importance of UK’s demand to constrain access to in-work benefits for EU migrants in Britain. RT: Would the EU be better to lose Britain altogether than sacrifice the main principles. Who’s going to win in this regard?

Tony Gosling: … You can almost pick a tramp from the streets of London – there are plenty more since Cameron came to power – and they probably would make a better job of this than David Cameron, because he first promised this referendum back in 2009, and still we’re waiting. Also we’ve got the situation back in May, when we had a general election that [François] Hollande and [Angela] Merkel made absolutely clear to Cameron – there would be no concessions, but he is still banging his head against that brick wall. No, I don’t think he is going to get these concessions. The battle is almost like he is grappling with a jellyfish, with the EU. They [EU] have already made these decisions. They are not known for being democratic – [Jean-Claude] Juncker and [Donald] Tusk. There is no democracy in the EU. They pay lip service to democracy, they have decided, what is going to happen.

Cameron’s real problem here is that he is looking for this four-year ban on benefits going to migrants coming into Britain. The problem being that four years is just not enough. Those benefits are keep going up to about 40 percent of everybody that comes into Britain’s pay packets. We’ve got a massive problem here with the working poor on benefits. He’s effectively saying that if migrants come to Britain, that they are going to be below the poverty line immediately… And of course, we can’t have that. Anybody in Britain that needs benefits is going to have to get them. We’ve already seen signs of this with things like tent cities springing up across the country…

RT: Are EU leaders growing tired of negotiating with the UK? TG: It almost seems we are the basket case of Europe, doesn’t it? And partly that is because we’ve stayed out of the euro and they wanted us in the euro. But we are in a similar position to many of the countries economically. We’ve got a massive property bubble. We’ve just heard here in Britain – it is so difficult to just to find somewhere to live. The house prices in Britain are now up to 300,000 pounds – that is $450,000 average to buy a house here in Britain. And that is what a classic bubble – massively over inflated house prices; no real market anymore.

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Just like Ron Paul does. And me.

‘Cancer of Europe’ – Russian Duma Speaker Calls For NATO Dissolution (RT)

State Duma Speaker Sergey Naryshkin has said that Russia is very concerned by continuing NATO expansion, adding that global security would benefit significantly from the dissolution of the military bloc. “My attitude to this organization is special – I see it as a cancerous tumor on the whole European continent. It would only be for the better if this organization is dissolved,” Naryshkin said during a meeting with Serbian lawmakers on Thursday. This dissolution could be conducted in several stages, the Duma speaker suggested. “First of all, the USA should be excluded from the bloc and after this it would be possible to painlessly disband the whole organization,” he said. “This would be a good step towards greater security and stability on the whole European continent.”

Naryshkin also told Serbian lawmakers that Russia was aware of the fact that large numbers of Montenegrin citizens, possibly even the majority of the country’s population, were resisting their nation’s potential entry into NATO. He noted that in late November the Russian State Duma called for the Montenegrin parliament to abandon plans to enter the military bloc, and expressed hope that Serbian politicians would offer some help in persuading Montenegro – which historically has been always close to Serbia – not to make this dangerous step. In early December NATO foreign ministers agreed to invite Montenegro to join the military alliance. In September, Montenegro’s parliament voted for a resolution to support the country’s accession to the military organization. The opposition called for a national referendum on the issue, but failed to push their initiative through the national legislature.

Moscow has promised that a response would follow if Montenegro joined NATO, but added that the details of any such steps are still under consideration. The head of the Russian Upper House Committee for Defense and Security, Viktor Ozerov, said that the step would force Russia to cut a number of joint projects with Montenegro, including military programs. In mid-December Russian Foreign Ministry spokesperson Maria Zakharova said the row over possible NATO membership had revealed deep divisions in Montenegrin society. “We think that the Montenegrin people should have their say in a referendum on this issue. This would be a manifestation of democracy that we call for,” Zakharova said.

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Election tomorrow.

135 Jobs In 2.5 Years: The Plight Of Spain’s New Working Poor (Guardian)

He has taken on stints as a stable hand, been a door-to-door salesman and set up stages for local concerts: rarely does David Pena turn down a job. “In the past two a half years, I’ve probably had about 135 contracts,” said Pena. Most of them last between one and three days. “It’s a bit tiresome not to ever have anything stable.” Tiresome is perhaps an understatement. The 33-year-old’s disjointed CV stands out as an extreme example of a growing section of Spanish society made up of those ousted from the workforce during the economic crisis and now struggling to land anything but precarious short-term contracts. On Sunday Spaniards will cast their ballots in one of the tightest races in the country’s recent history.

The result promises to offer a glimpse of the national mindset as Spain emerges from a prolonged economic downturn that sent unemployment soaring, triggered painful austerity measures and saw thousands of families evicted. The wide brush of corruption has sent Spaniards’ trust in politicians and institutions plunging in recent years, and given rise to a crop of national newcomers promising a better future. For many, however, the key issue in this campaign is jobs. Unemployment in Spain stands at 21.6% – the highest in the EU after Greece. Mariano Rajoy, the country’s current prime minister, has based his re-election campaign on the economy and its fragile recovery, pointing to more than 1m jobs created in the past two years and one of the fastest growth rates in the eurozone.

Polls suggest that his conservative People’s party (PP) will remain the largest party after Sunday’s election, even it looks likely to lose its majority. Rajoy’s critics point to the dire situation still facing many Spaniards, who, like Pena, have been forced to string together a salary from a series of low-paying contracts that offer scant benefits. Temporary workers now make up more than a quarter of the workforce in Spain. Far from just seasonal work, temporary contracts have become more common among hospital workers, teachers and other public servants. Statistics suggest that short-term work is the definitive feature of the new jobs being created, making up about 90% of the contracts signed this year so far in Spain, with about one in four lasting seven days or less.

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But arms sales are booming.

One Of Every 122 Humans Today Has Been Forced To Flee Their Home (WaPo)

The number of people who have been forced to flee their homes has reached a staggering level, with 2015 on track to break previous records, according to a United Nations report released Friday. People who have been forcibly displaced — including those who fled domestically as well as international refugees and asylum-seekers — has likely “far surpassed 60 million” for the first time, reads the U.N. High Commissioner for Refugees report. Last year, 59.5 million had been displaced. “In a global context, that means that one person in every 122 has been forced to flee their home,” the agency said in a statement. Forced displacement “is now profoundly affecting our times,” High Commissioner for Refugees António Guterres said in a statement.

“It touches the lives of millions of our fellow human beings – both those forced to flee and those who provide them with shelter and protection. Never has there been a greater need for tolerance, compassion and solidarity with people who have lost everything.” War in Syria has become the “single biggest generator worldwide of both new refugees and continuing mass internal and external displacement,” the agency said. More than 4 million Syrians are now refugees – compared t0 less than 20,000 in 2010. Following Syria, most refugees come from Afghanistan, Somalia and South Sudan. The report, which covers the first six months of 2015, found that by June, the world had 20.2 million refugees – nearly 1 million more than a year before.

An average of 4,600 people flee their homes daily, and nearly 1 million refugees and migrants have crossed the Mediterranean to get to Europe so far this year. Turkey, Pakistan and Lebanon host the most refugees. Such a massive flow of people from country to country has also put a strain on host nations, and left unmanaged, this “can increase resentment and abet politicization of refugees,” the report notes.

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Aug 222015
 
 August 22, 2015  Posted by at 9:22 am Finance Tagged with: , , , , , , , ,  10 Responses »


Harris&Ewing Motorcycle postman, Washington, DC 1912

Dow Plunges 531 Points In Global Selloff, Largest Weekly Drop Since 2008 (WSJ)
Stocks Post Worst Week In Years On China Fears (Reuters)
Record Capital Flight From China As Industrial Slump Drags On (AEP)
Chanos on China: “Whatever You Might Think, It’s Worse” (CNBC)
Chinese Market Mirroring 1929 Crash: Analyst (CNBC)
Fed Suffers Interest-Rate ‘Impotency’ as China Withers Markets (The Street)
Tsipras Hits Back After SYRIZA Rebels Form Own Group (Kathimerini)
Lafazanis Declares New Party’s Goals To Cancel Bailout, Write Down Debt (Kath.)
In a Twist, Europe May Find Itself Relying on Success of Alexis Tsipras (NY Times)
Germans Begin The Looting Of Greece (MarketWatch)
After the Bailout: The Spoils of Greece Are Bound for Germany (Sputnik)
German Wage Repression: Getting to the Roots of the Eurozone Crisis (Miller)
Debt Is Good (Paul Krugman)
The Drought Is Sinking California (Bloomberg)
Macedonia Migrants: Hundreds Rush Border (BBC)
Are Jellyfish Going To Take Over The Oceans? (Guardian)

A big one. But not THE big one.

Dow Plunges 531 Points In Global Selloff, Largest Weekly Drop Since 2008 (WSJ)

Stocks plummeted on global-growth fears for a second straight day Friday in a plunge that dragged the Dow industrials into correction territory. The global market rout pummeled stocks and commodities as fresh evidence emerged that China’s economy is slowing, spooking investors. The Dow industrials lost 530.94 points, or 3.1%, to close at 16459.75, putting it in correction territory, as defined by a 10% decline from a recent high. The S&P 500 dropped 64.84 points, or 3.2%, to close at 1970.89. The Nasdaq Composite fell 3.5%, or 171.45 points, to 4706.04. The Dow’s more than 1,000-point drop this week was the largest weekly drop since the week ended Oct. 10, 2008. U.S. oil prices also briefly dropped below $40 a barrel on Friday, a level not seen since the financial crisis.

Signs of a sharp slowdown in the world’s second-largest economy have unnerved investors since Beijing surprised markets last week by devaluing its currency. Shares in the U.S., Asia and Europe have tumbled, along with commodity prices as investors fretted about waning Chinese demand just as supplies are surging. The market turmoil has some traders exercising caution. “You have a situation that’s tough to play,” said Christopher Cady, a New York-based trader. He said he closed out bets toward the end of the week that U.S. stocks would fall. “Nimble…is the new black.” The pan-European Stoxx Europe 600 ended the session 3.3% lower, closing out its biggest week of losses since August 2011. The index has now lost nearly 13% since its April peak, entering correction territory.

Earlier, the Shanghai Composite Index tumbled 4.3%, hitting its lowest level since March, despite Beijing’s efforts to prop up the market in recent weeks. In Japan, the Nikkei fell 3% to a six-week low. An early gauge of China’s factory activity fell to a six-and-a-half year low in August, heaping further pressure on stocks and commodities after Thursday’s global selloff. “Now we’ve had some harder evidence that China is slowing relatively fast, people have chosen to get out,” said Kiran Ganesh at UBS Wealth Management.

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“You have across-the-board competitive currency devaluations that will invoke the deflationary monster here in the U.S.”

Stocks Post Worst Week In Years On China Fears (Reuters)

World stock markets tumbled on Friday and U.S. oil prices dove briefly below $40 a barrel sparked by fresh evidence of slowing growth in China, sending investors scurrying to the safety of bonds and gold. Stocks on Wall Street and in Europe fell more than 3% in a global rout spurred by a more than 4% fall in Shanghai stocks. Thomas Lee at Fundstrat Global Advisors in New York, said it was hard to say what was behind the sell-off in stocks but a market bottom may be close at hand. “There’s no shortage of things people can cite, from the movement in currencies, to the weakness in commodities and fears about China,” Lee said. “But at the end of the day if people are trying to take down risk, then it’s going to make sense for them to sell their exposure in equities as well.”

Crude posted its longest weekly losing streak in nearly 30 years and emerging market stocks, bonds and currencies all fell, with slowing Chinese growth withering demand for commodities from developing countries. China’s manufacturing sector shrank at its fastest rate in more than six years in August, according to a survey from private data vendor Caixin/Markit. World markets had already been on edge after China’s surprise devaluation of the yuan last week and a more than 30% fall in its stock markets since mid-year. The U.S. dollar fell too, dropping to a two-month low against the euro, as the Chinese data and falling commodity prices eroded expectations the Federal Reserve will raise U.S. interest rates next month.

“The Fed is in an extremely awkward situation right now,” said Robbert van Batenburg at Societe Generale. “You have across-the-board competitive currency devaluations that will invoke the deflationary monster here in the U.S.” The Dow industrials, Nasdaq and major European stock indices have now fallen more than 10% from their peak earlier this year. The pan-regional FTSEurofirst fell 3.4% to 1,427.13, its worst day since November 2011, as traders shrugged off upbeat euro zone manufacturing and services data in a third straight day of selling. MSCI’s emerging markets index was at its weakest in four years, off 2.16%, while the firm’s all-country world stock index fell 2.7%. The Dow Jones industrial average fell 530.94 points, or 3.12%, to 16,459.75. The S&P 500 slid 64.84 points, or 3.19%, to 1,970.89 and the Nasdaq Composite lost 171.45 points, or 3.52%, to 4,706.04.

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Well, that’s definitely one I got right, when I said after the first devaluation move that capital flight could well out-do any positive effects Beijing was hoping for. I’m thinking Peking Duck. Meanwhile, Ambrose is jubilant about China one day, and morose the next.

Record Capital Flight From China As Industrial Slump Drags On (AEP)

Capital outflows from China have surged to $190bn over the last seven weeks, forcing the authorities to intervene on an unprecedented scale to defend the Chinese currency. The exodus of funds is draining liquidity from interbank markets and has pushed up overnight Shibor rates by 30 basis points in the last ten trading days, a sign of market stress. Yang Zhao from Nomura said $90bn left the country in July. The pace has accelerated since the central bank (PBOC) shocked the markets by ditching its currency peg to the US dollar. Capital flight for the first three weeks of August is already close to $100bn, despite draconian use of anti-terrorism and money-laundering laws to curb illicit flows. Mr Zhao said the PBOC had intervened “very aggressively” to stabilise the currency and prevent the devaluation getting out of hand, but this automatically tightens monetary policy.

The central bank will almost certainly have to cut the reserve requirement ratio (RRR) for banks to offset the loss of liquidity, with some analysts expecting action as soon as this weekend. The PBOC’s latest report calls for “monetary easing”, dropping the usual caveat that measures should be targeted. It is a sign that Beijing is preparing blanket stimulus, despite worries that this could lead to a repeat of the credit excesses that have haunted China since the post-Lehman boom. The PBOC has already injected $160bn into the China Development Bank for projects. Hopes that China is at last shaking off a recession in the first half of the year – caused by a combined monetary and fiscal crunch – have once again been dashed by grim manufacturing data.

The Caixin PMI survey slumped to 47.1, far below the boom-bust line of 50 and the lowest since March 2009. New export orders slid further to 46.0 while inventories are rising, a nasty cocktail. Caixin Insight said the bad figures reflect the tail-end of a downturn that has largely run its course as stimulus kicks in. “The economy could be in the process of bottoming out and may start to rebound within the next few months,” it said. The ructions in China come at a moment when markets are already bracing for the first interest rate rise by the US Federal Reserve in eight years, a move that threatens to tighten the noose further on over-stretched emerging markets (EM) and the commodity nexus. Danske Bank said the latest rout is worse than the “taper tantrum” in 2013 when the Fed first hinted at tightening, and is quickly turning into a “perfect storm” as the Turkish lira, Brazilian real, Malaysian ringgit, and Russian rouble all go into free-fall.

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“In fact, like many of us, sometimes they don’t have a clue.”

Chanos on China: “Whatever You Might Think, It’s Worse” (CNBC)

Lingering concerns about China have helped drive stock selling, but investors may still underestimate how much the world’s second-largest economy has slowed, short seller Jim Chanos said Friday. “It’s worse than you think. Whatever you might think, it’s worse,” he said. Chanos appeared on CNBC’s “Fast Money: Halftime Report” on Friday amid the fourth straight day of losses for major U.S. averages. The Dow Jones industrial average, S&P 500 and Nasdaq were setting up for their worst weeks since 2011. He did not classify the drop as a correction or a bear market. But he noted that the yearslong runup in U.S. stocks shows “we’ve gotten a little complacent.” China’s slowdown, among other macroeconomic concerns, has spooked global investors.

Beijing’s handling of a stock market spike, “panic responses” from investors and recent currency devaluation has “given investors pause,” Chanos added. “People are beginning to realize the Chinese government is not omnipotent and omniscient,” he said. “In fact, like many of us, sometimes they don’t have a clue.” He added that investors should forget about the performance of the Shanghai composite, but instead focus on how declining GDP growth and the Chinese consumer could affect American companies with exposure to the country. Concerns about demand in China, one of the world’s largest energy consumers, has added pressure to already sagging commodities. Crude oil fell again on Friday, with West Texas Intermediate breaking below $40 per barrel for the first time since 2009.

A slowdown in consumption has fueled additional concern about what many observers have already called an oversupplied market. “Now that demand is flagging a little bit, the oversupply situation has just swamped the real demand,” he noted. Chanos is “betting against a number of the big guys” in the energy sector, he added. He dislikes Shell and Chevron, in particular.

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“In 1929, the market declined 50.6%. So that was a warning that there was something more serious in the market breakdown.”

Chinese Market Mirroring 1929 Crash: Analyst (CNBC)

Chinese stocks are set to fall another 9% in the next four or five days and are in danger of replicating the hefty losses seen in the U.S. exchanges in the Wall Street crash of 1929, an analyst has told CNBC. Thomas DeMark, founder and CEO of DeMark Analytics, told CNBC Friday that the current turmoil on the Shanghai Composite index is already on course to echo the crash of 1987 and 2001, but could still fall even lower. “That’s what could happen,” DeMark said, detailing the technical analysis that his company use to predict stock market declines. “In 1929, the market declined 50.6%. So that was a warning that there was something more serious in the market breakdown.”

DeMark added that his company turned bearish on China on June 12, just as the market reached a top and has – more or less – correctly predicted the downturn of 38% that has occurred since. He now sees the blue-chip index – which closed 4.3% lower Friday at 3,509.98 points – dropping to 3,282 points, or even 3,200 points. At this juncture, his technical models state there could be a 40% rally, which would mirror similar moves in 1987 and 2001. However, he added that a further fall was still possible which would echo world stock markets in the time of the Great Depression. “We can’t determine that right now. We think there’s going to be great rally, meaningful rally off the 3200 (points), or even worse case 3282, and we’ll see a retracement of 40% of the decline. And at that time we can reassess what the outlook is,” he said.

DeMark spoke of a “preordained” move in the Chinese stock markets. Authorities in Beijing have curbed short selling and several publicly listed firms have been able to suspend the trading of their shares over the last few weeks. Economists have highlighted that the Chinese officials might be trying to force a bottom in the Chinese markets or “shake out” foreign investors from speculating on its indexes. This sort of “interference” creates a vacuum in the market, according to DeMark, who said it adds to a growing sense of pessimism. DeMark is no stranger of making bold market predictions. In early 2014, he told CNBC that U.S. stocks had reached an “inflection point” that resembled the period prior to the 1929 stock-market crash. He did stress that certain caveats and preconditions would need to be met before “turning all-out bearish” but the market turmoil in U.S. stocks failed to materialize.

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“The “end of excess liquidity and the end of excess profits has caused an end of excess returns in 2015..”

Fed Suffers Interest-Rate ‘Impotency’ as China Withers Markets (The Street)

Years of holding interest rates near zero have left the Federal Reserve suffering from “central bank policy impotence,” a Bank of America report says, and there’s no pill to provide a quick fix. Pushing interest rates up now, even though the benefits of low rates are fizzling, risks spooking the markets just when they’re getting hammered by China’s slump. The S&P 500 plummeted 3.2% for the day and has fallen 7.5% since its May high, near the 10% decline which would constitute a correction. The Dow Jones Industrial Average dropped 3.1% or 539 points. The “end of excess liquidity and the end of excess profits has caused an end of excess returns in 2015,” Michael Hartnett of the bank’s Merrill Lynch Global Research unit wrote in the report this week.

“The summer mood of investors appears to have darkened considerably as the declines in commodities and emerging markets have induced widespread losses in equities in recent weeks.” Worldwide, stocks have dropped 2.6% in the past month, he noted. The excess returns Hartnett’s team acknowledged were largely due to the Fed’s policy of keeping interest rates near zero for the past seven years. Unfortunately, the effectiveness of that policy has waned in what Bank of America characterized as “central bank policy impotence.” Year-to-date returns across asset classes have been underwhelming compared with those in the market run-up from 2009 to 2014, Hartnett’s team noted. By his measure, the total return on stocks so far this year has been 2.3%, while bonds decreased 2.5%.

Still, Bank of America advises that tactical traders – those who take short to medium-term positions in their trades – may want to add some riskier, potentially higher-yielding, assets to their portfolio. The recommendation comes with two big caveats, however: China devaluation and, of course, Fed policy. Last week, China devalued its currency by 2%. While the amount is small, it can pose significant consequences to U.S. manufacturing and export businesses. Bank of America already sees U.S. inventories outpacing sales, which could lead to a supply glut. If the demand for U.S. goods overseas is further decreased by the comparably higher cost relative to Chinese goods, profits could take a hit.

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It’ll be interesting elections. If Greec, in its predicament, did not have these heated discussions, it wouldn’t be a functioning democracy.

Tsipras Hits Back After SYRIZA Rebels Form Own Group (Kathimerini)

Prime Minister Alexis Tsipras chaired a meeting of SYRIZA’s political secretariat on Friday to discuss strategy ahead of snap elections as former Energy Minister Panayiotis Lafazanis announced his new breakaway party, Popular Unity, which is to campaign on an anti-austerity platform. The party, comprising Lafazanis and another 24 SYRIZA hardliners, will aim to cancel Greece’s bailouts and write down the country’s debt, Lafazanis told a press conference in Parliament. The goals are virtually the same as those championed by Tsipras ahead of the January elections that brought SYRIZA to power. But Lafazanis, who has lobbied for Greece to return to the drachma, also indicated that his party would “follow the course of exiting the euro” if necessary, insisting that any exit would be “orderly.”

Lafazanis, whose party is now the third largest in Parliament and as such has the right to seek to form a government, said Popular Unity would seek alliances with all “progressive” parties except those that have backed austerity. Lafazanis is to take over the exploratory mandate on Monday from New Democracy leader Vangelis Meimarakis, who assumed it yesterday. Tsipras meanwhile convened his political secretariat. Before discussing pre-election strategy, the three members of the secretariat who are now aligned with Lafazanis resigned. They blamed Tsipras and SYRIZA’s leadership for the breakup of the party. Tsipras also took a jab at the SYRIZA rebels. “It is not revolutionary to choose to escape from reality or create a virtual reality,” he was quoted as saying. “It is revolutionary to open roads where there aren’t any.”

As for SYRIZA, he said it “has a chance to develop a new relationship with the society that supports it and to acquire a clear ideological and political identity of a contemporary, radical left, purged of reactionary remnants and self-delusion.” The party’s central committee is expected to meet in the week. It remains unclear when the elections will take place. The proposal was for September 20 but if the procedures involving the exploratory mandates are delayed, that date could be put back to September 27. Parliament Speaker Zoe Constantopoulou, another SYRIZA rebel who has used her power to delay and obstruct proceedings in the House, raised objections yesterday to the procedure followed by President Prokopis Pavlopoulos in handing a mandate to Meimarakis.

She accused Pavlopoulos of an “institutional faux pas,” saying that she had not been informed in advance as, she said, the Constitution dictates. Sources in the president’s office retorted that he had “honored the Constitution to the letter.” The intervention was not expected to delay the process though the outlook for Constantopoulou’s relationship with SYRIZA remained unclear. The response from Greece’s creditors to looming elections appeared relatively upbeat, with several officials indicating that they had been expecting the move and saying the polls could help Tsipras broaden his majority and boost implementation of the new bailout program.

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“The ‘no’ of the referendum will not be an ‘orphan’ in these elections..”

Lafazanis Declares New Party’s Goals To Cancel Bailout, Write Down Debt (Kath.)

Addressing his new breakaway party Popular Unity, Panayiotis Lafazanis on Friday declared that the new movement would offer a “realistic, alternative to the memorandum,” and said its key goals would be to cancel the memorandums and write down Greece’s debt, adding that any euro exit would be “orderly.” “We will become a major and decisive political force,” he said, adding that the grouping of 25 MPs “will try to express the spirit and substance of the 62% who voted no to austerity,” referring to last month’s referendum on austerity measures proposed by Greece’s creditors.

“The ‘no’ of the referendum will not be an ‘orphan’ in these elections,” Lafazanis told MPs and reporters in Parliament. He said the decision by Prime Minister Alexis Tsipras to call snap elections in the summer “does not portend good things” and suggested that the premier had tried to catch Greeks off guard. “If it is necessary for us to cancel the memorandum, we will follow the course of exiting the euro,” Lafazanis said, adding that any exit would be “orderly.”

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Not sure they would get what they want. Don’t think Tsipras is done yet.

In a Twist, Europe May Find Itself Relying on Success of Alexis Tsipras (NY Times)

Europe spent months trying to crush Alexis Tsipras. But now that Greece’s leftist prime minister has called a snap election and is seeking a mandate for the tough new bailout program he negotiated with his country’s creditors, Europe, oddly enough, may find itself invested in his success. Greece never fails to surprise, and Mr. Tsipras’s turbulent eight-month tenure has proved he is rarely predictable. But the man many European leaders once regarded as a populist wrecking ball is now presenting himself as a figure who can deliver pragmatism and stability — and carry out the sort of austerity program he once inveighed angrily against.

“I’m sure that he has talked to European leaders, and they are O.K. with what he is doing now,” said Harry Papasotiriou, a professor at Panteion University in Athens, adding that Mr. Tsipras was staking his political life on a bailout deal that includes the kind of taxes and pension cuts he once opposed. “He’s taking ownership of it.” The latest twist by Mr. Tsipras was met with cautious optimism on Friday by some European commentators even as his surprise move again tossed Greece into political turmoil. On Friday, a faction of hard-line leftists split from Mr. Tsipras’s Syriza party and formed a new party, vowing to resist austerity and possibly even lead Greece out of the eurozone.

At the same time, analysts cautioned that the new election, and the continuing political maneuverings in Athens, could further complicate and slow implementation of the 86 billion euro bailout program, worth about $98 billion at Friday’s exchange rate, signed by Mr. Tsipras in July. An initial progress review by creditors, scheduled for October, may be delayed, which would delay discussions between Greece and its lenders over possible restructuring of the country’s crippling sovereign debt. Some economists also warned that the uncertainty surrounding the elections, including the possibility that the proposed Sept. 20 election could be pushed back, could revive the sort of public anxiety that earlier this year destabilized the broader economy and spurred a run on Greek banks. “That element I find to be much more risky,” said Marcel Fratzscher, president of the German Institute of Economic Research in Berlin. “It creates much more uncertainty.”

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“..the plundering that has now begun unmasks the whole euro charade for what it really is — a war of conquest by money rather than by arms.”

Germans Begin The Looting Of Greece (MarketWatch)

To the victor goes the spoils. The ink was not yet dry on the new European bailout accord for Greece before German companies started their plundering of Greek assets. Per provisions of the “agreement” imposed on Greece, the Athens government awarded the German company that runs the Frankfurt Airport, Fraport, a concession to operate 14 regional airports, mostly on the islands like Mykonos and Santorini favored by tourists, for up to 50 years in the first privatization of government-owned assets demanded by the creditors. The airport deal had been agreed upon last year by the previous Greek government and then suspended by Prime Minister Alexis Tsipras’s newly elected government this year as part of his pledge to prevent the fire sale of valuable public assets at bargain-basement prices.

The airport deal gives Fraport the right to run the facilities as its own for €1.2 billion over the 50 years and an annual rent of €23 million. The German company is also pledging to invest significantly in upgrades for the airports. Under the terms of the new bailout accord, which provides 86 billion euros of new debt to a government already vastly overindebted, the country must sequester €50 billion worth of public assets to sell off at distressed prices to mostly foreign bidders — with German companies first in line. In the end, Tsipras had no choice but to buckle under to the creditors’ demands if he wanted to fulfill his other pledge of keeping the country in the euro. But the plundering that has now begun unmasks the whole euro charade for what it really is — a war of conquest by money rather than by arms.

Privatization is a standard feature of the neoliberal policy mix seeking smaller government, less state intervention and more free-market competition. (Privatization, of course, leads just as often to crony capitalism, while some services, such as electricity and trains, are arguably more efficient as government-owned monopolies.) But privatization in the context of the bailout accord is tantamount to expropriation, like forcing a bankrupt to sell the family silver in order to pay off debts. After piling more and more unsustainable debt onto the Greek government in two previous bailouts — most of which went back to banks in France and Germany — the victorious Northern European governments are now inviting their companies to partake in the spoils.

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“..workers will be sacked and their conditions made worse, while the elite of Europe profits.”

After the Bailout: The Spoils of Greece Are Bound for Germany (Sputnik)

The ‘Asset Development Plan’ for Greece is out and it’s all go for the privatization of the country. Hellenic sea ports, air ports, motorways, petroleum companies, water and gas supply, real estate, holiday resorts – it’s all for sale. Debt laden Greece has been forced to sell the family silver in an all too familiar tale with ancient history repeating itself. The Hellenic Public Asset Development Fund has been published by German Green MEP Sven Giegold who said the Greek people “hardly know” what will be sold off and that they have “the right” to know. The selling of Greek assets to raise €50 billion was demanded by Greece’s creditors, the Troika. The document reveals that 66% of a gas distribution and processing firm will be sold to Azerbaijan; 35% of Greece’s first oil refinery firm will be sold off along with 17% of its electricity distributor and 65% of gas distributor Depa.

All rail and bus services will go under the hammer — along with the Greek telephone and postal service. Even before the bailout deal was completed and the money arrived safely in the Greek banks, the Germans had won their bid to take over 14 Greek airports for the next 40 years, paying $1.36 billion (€1.23bn) for the privilege. Of the $56 billion (€50bn) needed in asset stripping and bank shares, only $8.69 billion (€7.7bn) has been agreed so far. Nick Dearden, economic expert and campaigner, says it makes “no sense to sell off valuable assets in the middle of Europe’s worst depression in 70 years.” Writing in Global Justice Now, Dearden says: “The vast majority of the funds raised will go back to the creditors in debt repayments, and to the recapitalization of Greek banks.

“From German airport operators and phone companies to French railways — who are getting their hands on Greece’s economy. Not to mention the European investment banks and legal firms who are making a fast buck along the way. “The self-interest of European governments in forcing these policies on Greece leaves a particularly unpleasant flavour…workers will be sacked and their conditions made worse, while the elite of Europe profits.” Dearden continues to offer a scathing attack on the asset stripping of Greece. “Privatization in the context of the bailout accord is tantamount to expropriation, like forcing a bankrupt to sell the family silver in order to pay off debts…the victorious Northern European governments are now inviting their companies to partake in the spoils.”

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Interesting take.

German Wage Repression: Getting to the Roots of the Eurozone Crisis (Miller)

Beggar Thy Neighborhood

Germany’s transformation into an export powerhouse came at the expense of the southern eurozone economies. Despite posting productivity gains that were equal or almost equal to Germany’s, Greece, Portugal, Spain, and Italy saw their labor costs per unit of output—and in turn prices rise— considerably faster than Germany’s. Wage growth in these countries exceeded productivity growth, and the resulting higher unit labor costs pushed prices up by more than the eurozone’s low 2% annual inflation target (though by only a small margin). The widening gap in unit labor costs gave Germany a tremendous competitive advantage and left the southern eurozone economies at a tremendous disadvantage.

Germany amassed its ever-larger current account surplus, while the southern eurozone economies were saddled with worsening deficits. Later in the decade, the Greek, Portuguese, and Spanish current account deficits approached or even reached alarming double-digit levels, relative to the sizes of their economies. In this way, German wage repression is an essential component of the euro crisis. Heiner Flassbeck, the German economist and longtime critic of wage repression, and Costas Lapavistas, the Greek economist best known for his work on financialization, put it best in their recent book Against the Troika: Crisis and Austerity in the Eurozone: “Germany has operated a policy of ‘beggar-thy-neighbor’ but only after ‘beggaring its own people’ by essentially freezing wages. This is the secret of German success during the last fifteen years.”

While Germany’s huge exports across Europe and elsewhere created German jobs and lowered the country’s unemployment rate, the German economy never grew robustly. Wage repression subsidized exports, but it sapped domestic spending. And, held back by this chronic lack of domestic demand, Germany’s economic growth was far from impressive, before or after the Great Recession. From 2002 to 2008, the German economy grew more slowly than the eurozone average, and over the last five years has failed to match even the sluggish growth rates posted by the U.S. economic recovery.

With low wage growth, consumption stagnated. German corporations hoarded their profits and private investment relative to GDP fell almost continuously from 2000 on. The same was true for German public investment, held back by the eurozone budgetary constraints. At the same time, Germany spread instability. Germany’s reliance on foreign demand for its exports drained spending from elsewhere in the eurozone and slowed growth in those countries. That, in turn, made it less likely that German banks and elites would recover their loans and investments in southern Europe.

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Infrastructure.

Debt Is Good (Paul Krugman)

Rand Paul said something funny the other day. No, really — although of course it wasn’t intentional. On his Twitter account he decried the irresponsibility of American fiscal policy, declaring, “The last time the United States was debt free was 1835.” Wags quickly noted that the U.S. economy has, on the whole, done pretty well these past 180 years, suggesting that having the government owe the private sector money might not be all that bad a thing. The British government, by the way, has been in debt for more than three centuries, an era spanning the Industrial Revolution, victory over Napoleon, and more. But is the point simply that public debt isn’t as bad as legend has it? Or can government debt actually be a good thing?

Believe it or not, many economists argue that the economy needs a sufficient amount of public debt out there to function well. And how much is sufficient? Maybe more than we currently have. That is, there’s a reasonable argument to be made that part of what ails the world economy right now is that governments aren’t deep enough in debt. I know that may sound crazy. After all, we’ve spent much of the past five or six years in a state of fiscal panic, with all the Very Serious People declaring that we must slash deficits and reduce debt now now now or we’ll turn into Greece, Greece I tell you.

But the power of the deficit scolds was always a triumph of ideology over evidence, and a growing number of genuinely serious people — most recently Narayana Kocherlakota, the departing president of the Minneapolis Fed — are making the case that we need more, not less, government debt. Why? One answer is that issuing debt is a way to pay for useful things, and we should do more of that when the price is right. The United States suffers from obvious deficiencies in roads, rails, water systems and more; meanwhile, the federal government can borrow at historically low interest rates. So this is a very good time to be borrowing and investing in the future, and a very bad time for what has actually happened: an unprecedented decline in public construction spending adjusted for population growth and inflation.

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“..more than a foot in just eight months..”

The Drought Is Sinking California (Bloomberg)

Land in California’s central valley agricultural region sank more than a foot in just eight months in some places as residents and farmers pump more and more groundwater amid a record drought. The ground near Corcoran, 173 miles (278 kilometers) north of Los Angeles, dropped about 1.6 inches every 30 days. One area in the Sacramento Valley was descending about half-an-inch per month, faster than previous measurements, according to a report released Wednesday by the Department of Water Resources. NASA completed the study by comparing satellite images of Earth’s surface over time.

“Groundwater levels are reaching record lows — up to 100 feet lower than previous records,” Mark Cowin, the department’s director, said in a statement. “As extensive groundwater pumping continues, the land is sinking more rapidly and this puts nearby infrastructure at greater risk of costly damage.” Areas along the California Aqueduct — a system of canals and tunnels that ships water from the north to the south — sank as much as 12.5 inches, with eight inches of that occurring in just four months of 2014, researchers found.

The warnings come as a four-year, record-setting drought squeezed California’s $43 billion agriculture industry and led to mandatory, statewide water restrictions for the first time. The sinking could damage aqueducts, bridges, roads and dams, NASA said. As it occurs over time, sinking land has already destroyed thousands of public and private groundwater well casings in central California, the agency found. A state law enacted in September requires local governments to form agencies to regulate pumping to better manage groundwater supplies.

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Countries must leave EU to deal with this.

Macedonia Migrants: Hundreds Rush Border (BBC)

Hundreds of migrants have rushed at Macedonian border forces in an attempt to enter the country from Greece. The security forces beat back the migrants with truncheons and riot shields. A number of people were injured. On Thursday, Macedonia declared a state of emergency to cope with migrants – many from the Middle East – who are trying to reach northern EU states. The UN urged both Greece and Macedonia to tackle a “deteriorating situation”. Some 44,000 people have reportedly travelled through Macedonia in the past two months, meeting little border resistance, but razor wire has now been rolled across the frontier to prevent people from entering. Medecins Sans Frontieres said it had treated 10 people with wounds from stun grenades fired by Macedonian troops, near the Greek border village of Edomeni.

Amnesty International deputy Europe director Gauri van Gulik said: “Macedonian authorities are responding as if they were dealing with rioters rather than refugees who have fled conflict and persecution.” Macedonian Foreign Minister Nikola Poposki told the BBC that his government had been forced to act because the numbers trying to enter Macedonia had recently soared to more than 3,000 a day. He said a small country such as his could not cope with such an influx. Police have issued temporary transit documents to 181 migrants in the past 24 hours. Spokesman Ivo Kotevski told Reuters: “We are allowing entry to a number that matches our capacity to transport them or to give them appropriate medical care and treatment.”

The BBC’s James Reynolds, who was at the scene, says that later on Friday he saw some families being allowed to cross – they smiled with relief as they walked to a train station so they could head north to Serbia, Hungary and the rest of Europe. The UN refugee agency, the UNHCR, on Friday expressed concern for “thousands of vulnerable refugees and migrants, especially women and children, now massed on the Greek side of the border amid deteriorating conditions”. It urged Macedonia to “establish an orderly and protection-sensitive management of its borders” while appealing to Greece to “enhance registration and reception arrangements” on its side of the border. The UNHCR also said it had been assured by Macedonia the border “will not be closed in the future”, but did not elaborate.

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Back to the future.

Are Jellyfish Going To Take Over The Oceans? (Guardian)

Another British summer, another set of fear-mongering headlines about swarms of “deadly” jellyfish set to ruin your holiday. But news that jellyfish numbers may be rising carries implications far beyond the interrupted pastimes of the sunburnt masses. Like a karmic device come to punish our planetary transgressions, jellyfish thrive on the chaos humans create. Overfishing wipes out their competitors and predators; warmer water from climate change encourages the spread of some jellies; pollution from fertilisers causes the ocean to lose its oxygen, a deprivation to which jellyfish are uniquely tolerant; coastal developments provide convenient, safe habitat for their polyps to hide. In addition, the great mixing of species transported across the world in the ballasts of ships opens up new, vulnerable ecosystems to these super-adaptors.

“They’ve got this unique life cycle where they can tolerate harsh conditions and then rapidly thrive when conditions are favourable. So when a stressor like climate change or overfishing opens up a niche for them they can really take advantage of that and rapidly proliferate,” said Lucas Brotz, a researcher at the University of British Columbia. Not all species of jelly benefit, rather there tends to be a reduction in the diversity of species and vast, homogenous masses emerge. “They can make millions and millions of copies of themselves and clone asexually. That’s when you get these massive blooms. I think that’s the secret to the success of jellyfish, the reason they’ve been around for hundreds of millions of years.”[..]

The links between human activity and local jellyfish blooms are strong. In the Black Sea, invasive comb jellies dumped from the ballast of tankers have spawned deliriously and destroyed the region’s fishing industry. In the Sea of Japan, fertiliser run-off has left an oxygen-depleted sea where little other than jellies can thrive. But aside from these regional observations, Mark Gibbons, a zoologist at the University of the Western Cape, said the evidence to support a global trend was still patchy. “Whether there is strong evidence of a global increase in jellyfish populations [now] is difficult to answer. Certainly in some coastal systems there have been increases but in others there have not – or at least the background data with which to measure change are absent or scant, so it is hard to say,” he said.

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